What is Bankruptcy Abuse Prevention and Consumer Protection Act

The Bankruptcy Abuse Prevention and Consumer Protection Act is a law that was passed in 2005 to make it harder for certain debtors to file for Chapter 7 bankruptcy. Part of the reason for this law was to decrease abuse of the system and make Chapter 7 bankruptcy primarily for low-income debtors, as it was intended, and not allow as many high-income debtors to file for it.
To do this, the law established a means test for Chapter 7 filings. Now, it became possible for people to be blocked from filing for Chapter 7 if it is found that they should be able to pay off their debts. The means test only applies for anyone who earns over the median income for their state, so everyone under the median is safe from being examined for abuse. Everyone above the median income must compare their income to their expected living expenses, and if it is shown that they should have enough money to pay off their debts, then they are no longer allowed to file for Chapter 7 bankruptcy.

The new bankruptcy law changed several more aspects of the bankruptcy process. Before filing for bankruptcy, debtors must now complete credit counseling with an approved agency, and debtors filing for Chapter 13 bankruptcy must complete a financial management class as well. In addition, the law overruled some more lenient laws – for instance, the law limited the use of automatic stays and capped the amount of homestead protection.

While the new bankruptcy law may sound harsh, it is mainly to reorganize the bankruptcy process to better fulfill its intended goal of helping those who truly need it. Before the law, there were loopholes that allowed debtors to move assets around to more lenient states to receive an unfair amount of protection. Still, the law restricts the opportunities of all debtors, and as a result was met with a lot of criticism from consumer advocacy groups. Regardless, it is important to understand the new bankruptcy laws to be able to be informed about potential options when filing for bankruptcy.

• Author
• Recent Posts

Graham Billings

Graham Billings is a senior at the University of North Carolina at Chapel Hill with a double major in Economics and Political Science. He plans to graduate in December of 2009 and then attend law school in the fall of 2010. He is a member of the Economics Club at Carolina, which brings in speakers and hosts events in order to discuss current economic issues and help those who do not have a background in economics become more familiar with it. He is a National Merit Scholar and Dean’s List recipient. He is originally from Greensboro, North Carolina and attended the Early College at Guilford for high school, taking classes at Guilford College. In addition to economics, his academic interests include the legal and political system. He headed the only student-run, high school-level Honor Court in high school and participated in a national model Congress in San Francisco, run by Harvard students, and won awards of excellence for his work on the mock Supreme Court. Additionally, he tutors Carolina students in economics on a volunteer basis.

Latest posts by Graham Billings (see all)

• What is credit utilization rate? - October 29, 2013
• What is a deed in lieu of foreclosure? - October 29, 2013
• Getting a Cheap Car Loan that Fits your Budget - December 6, 2010