Get to Know the New Bankruptcy Law
BAPCPA, the Bankruptcy Means Test and You
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If you've been researching bankruptcy as an option to your debt, you may have heard about the "new" bankruptcy law. The law, passed in 2005, aims to prevent bankruptcy abuse—while helping those who legitimately need bankruptcy relief find protection against creditors.
Here, you can find out more about the new bankruptcy law, or connect with a bankruptcy lawyer to learn more about how the law might affect your bankruptcy case.
Simply fill out our free bankruptcy case evaluation form or call 877-833-2410, and we'll put you in touch with a local bankruptcy lawyer as soon as possible.
Aspects of the New Bankruptcy Law
Filing for Bankruptcy under the New Law
After all of the confusing media coverage, you may be worried that the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) will limit the bankruptcy protection available to you.
Don't assume the worst. Though it's true that BAPCPA added new requirements for bankruptcy petitioners, financial relief is still available for most people who could have filed bankruptcy before. A local bankruptcy lawyer can explain how filing bankruptcy under the new rules may require a little more time and effort.
A small number of people who might have filed for Chapter 7 bankruptcy may be disqualified under the new law, but even those people needn't despair: Chapter 13 bankruptcy may still offer protection!
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What is the "New" Bankruptcy Law?
The credit card industry lobbied for nearly ten years to "reform" bankruptcy. The stated goal of BAPCPA was to address the supposedly serious problem of fraudulent and dishonest bankruptcy filing. In other words, the lobbyists wanted to prevent Americans from running up massive debts on credit cards with the intention of having the debt discharged in bankruptcy rather than paying it.
Naturally, these lobbyists didn't mention to Congress that only approximately 2% of bankruptcy filings in the U.S. are fraudulent.
Whether or not the law changes were necessary, they're now in place. The three most prominent changes to the bankruptcy system are the pre-filing credit counseling briefing, the post-filing financial management course and the Chapter 7 means test.
Everyone filing for bankruptcy—whether Chapter 7 or Chapter 13—must first complete a credit counseling briefing with an accredited credit counseling agency. This requirement allows potential filers to explore their other options before making the decision to file for bankruptcy. The financial management course (sometimes called debtor education) helps filers develop the types of money-management skills they can use to stay out of debt and financially healthy once they receive their bankruptcy discharges.
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Understanding the Chapter 7 Means Test
The third big change, the Chapter 7 means test, is intended to restrict the protection offered by Chapter 7 bankruptcy to Americans who truly lack the means to repay their debts.
Chapter 13 bankruptcy gives filers a chance to catch up on their debts with a three to five year repayment plan. Chapter 7 bankruptcy, on the other hand, offers filers a discharge of many unsecured debts (that is, debts not attached to property). The means test acts to ensure that those who are able to make some payment do so, while extending the more comprehensive protections of Chapter 7 only to those who cannot realistically hope to pay their debts.
The means test calculation begins by comparing a debtor's income to the state median income for his family size. A local bankruptcy attorney can help with this comparison. Most people whose income falls below the median can file for Chapter 7 bankruptcy. For those with somewhat higher income, the test continues with a calculation of monthly disposable income.
Crunching all these numbers can prove complicated, but a local bankruptcy lawyer can help. And, though the means test was designed to funnel more petitioners to Chapter 13 bankruptcy, early post-BAPCPA figures showed that as many as 95% of those who attempted to file under Chapter 7 "passed" the means test.
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BAPCPA's Effect on Total Bankruptcy Filings
Early post-BAPCPA figures—bankruptcy counts from the months immediately after the new law took effect—showed a slowing down of personal bankruptcy filings. Proponents of the new law pointed to this drop-off as evidence of BAPCPA's "success".
A closer look at the numbers, though, reveals that many people rushed to file for bankruptcy just before the changes were made, probably because they were worried they wouldn't qualify for bankruptcy under the new, stricter terms.
In the months directly following the passage, then, total filings were down—but, as the years have passed, that trend seems to be long over. In 2009, nearly 1.5 million people filed for personal bankruptcy protection in the United States.
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Your Bankruptcy Under BAPCPA
Most people who truly need to file for bankruptcy protection still qualify under the "new" laws. There are a few new hoops to jump through, but in most cases they don't change the end result. A bankruptcy attorney can help guide you through the process.
If you're ready to move forward with your life, fill out our free bankruptcy case evaluation form or call us toll-free at 877-833-2410. We'll connect you with a lawyer in your area to help you take the next step.