In reaction to the increasing number of bankruptcy filings in the United States, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) in 2005. The number of bankruptcy filings in the United States reached almost 1.3 million in 2000, up from about 700,000 in 1990. In response to what many perceive as an abuse of bankruptcy protections, the new legislation added additional hurdles to filing bankruptcy.
Chapter 7 Bankruptcy - Less Americans Eligible
Generally, bankruptcy allows all qualifying debtors a fresh start. However, under BAPCPA, certain individuals are prohibited from filing for Chapter 7 bankruptcy altogether. For instance, the act presumes that individuals (1) whose incomes are above the state median, and (2) those who can afford to pay creditors as little as $100 per month are engaged in bankruptcy abuse. The individual must rebut the presumption or be barred from filing under Chapter 7. Those who are not permitted to file for Chapter 7 must either enter Chapter 13 repayment or continue to fall further behind in their debt repayment.
Chapter 13 Bankruptcy - Repayment More Difficult
Those who do opt to file for Chapter 13 bankruptcy will also find that this avenue may be more difficult under BAPCPA. For instance, pursuant to Chapter 13, a debtor's repayment scheme used to be based on the debtor's income and expenses. Under BAPCPA, debtors will not be permitted to claim certain expenses that they used to be able to claim. This may cause many expenses to be left out of the court's calculation of the debtor's expenses and income, making repayment more difficult (since the court's determination of expenses is lower than the debtor's actual expenses).
Decrease of Collection Obstacles For Creditors
Provisions of the Bankruptcy Code, prior to the implementation of BAPCPA, provided for the "automatic stay" whereby creditors are prevented from bringing collection actions against a debtor who files for bankruptcy. However, BAPCPA would decrease the power of the automatic stay in many situations, including actions to withhold and suspend or restrict a driver's or professional license.
Bankruptcy Filing Obstacles
The BAPCPA also creates the following additional obstacles to filing for bankruptcy:
- Before filing for bankruptcy, debtors are required to receive credit counseling from a nonprofit agency.
- Before filing for bankruptcy, debtors must complete a course on personal financial management.
- Before filing for Chapter 7 bankruptcy, debtors must provide a federal tax return for the most recent tax year.
Recent Filing Statistics
According to the United States Courts web site, only 597,965 individual bankruptcies were filed in 2006—down from 2,039,214 filed in 2005, the year BAPCPA became effective. However, the 2005 numbers may be skewed to account for the many debtors who raced to beat the restrictions imposed by BAPCPA. The number of bankruptcies filed in 2006 is the lowest since 1988. There are no statistics currently available on how many abusive bankruptcies have been actually been thwarted by BAPCPA.
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