How the Bankruptcy Reform Act of 2005 Affects Bankruptcy Filers

In 2005, with approval from Congress, President Bush signed into law the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCA). BAPCA was a result of eight years of negotiating, and it made significant changes to bankruptcy law for the first time in decades.

The consensus is, however, that BAPCA favored creditors more than debtors. Support for the Act came from banks and credit card companies, which spent more than $100 million lobbying for it over the eight years preceding its passage. Opposing the Act were many consumer advocates, legal scholars and other bankruptcy experts. In many instances, the Act makes it more difficult for consumers to file for bankruptcy. A Morris County bankruptcy attorney can help you understand how the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 affects your bankruptcy filing.

Means Test for Chapter 7 Filers

Perhaps the biggest change brought about by BAPCA is the requirement of a means test for those who file for Chapter 7 bankruptcy. The means test aims to prevent people from filing for Chapter 7 if they have enough money to pay off their debts. It pushes more people towards a Chapter 13 reorganization and repayment bankruptcy.

The means test can be quite complex, so it is always best to consult with a bankruptcy attorney, but the general guideline is to determine whether your current monthly income is more than your state’s median income. You can derive your current monthly income by looking at all of your gross income over the six months prior to filing. If you are below the state median, you can proceed with filing. If you are above it, there are more tests to determine whether you qualify for Chapter 7.

Mandatory Credit Counseling

Before people can file for bankruptcy now, they must receive individual or group credit counseling. This can occur in person, over the telephone or via the internet, but the counseling agency must be on the bankruptcy court’s approved list. The goal of requiring counseling is to help people avoid filing for bankruptcy unless they absolutely must do so. Some people may be able to reach a settlement with their creditors to pay off their debt without filing for bankruptcy.

Limits on Repeat Bankruptcy Filers

Several provisions of BAPCA place restrictions on people who file for bankruptcy multiple times within a relatively short time frame. For example, the automatic stay is one of the more important consumer protections available for bankruptcy filers. For most people, as soon as they file for bankruptcy, all collections activities and foreclosures by creditors must stop. For people who file a subsequent bankruptcy within a year or two of a past one, their automatic stay may be brief or may not take place at all.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 instituted important changes in bankruptcy law. As it is still somewhat recent, courts, bankruptcy attorneys, creditors and bankruptcy filers continue to litigate its provisions. Contact a Morris County bankruptcy lawyer at Ast & Schmidt, PC to learn how the 2005 Bankruptcy Act’s changes might affect you.

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