BAPCPA: How Does Bankruptcy Law Affect Me?
Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA)
On October 17, 2005, under the administration of President George W. Bush, the BAPCPA Bankruptcy Law went into effect, revising the previous United States Bankruptcy Code. In an effort to prevent bankruptcy abuse, this act’s main function intended to make it more difficult to qualify for Chapter 7 bankruptcy, which often doesn’t require repayment of debts, by increasing examination into an individual filer’s ability to repay their debts.
BAPCPA Means Test
To determine an individual’s ability to repay their debts and thus qualify for file for Chapter 7, the BAPCPA created what is called a “means test”.
“The means test compares the debtor’s monthly income to the median income in his or her state of residence and provides an allowance for assumed monthly expenses, at rates determined by the IRS, as well as an allowance for actual monthly expenses. If the individual exceeds the median income and has too much money left over after accounting for living expenses, he or she will usually not qualify for chapter 7 bankruptcy (investopedia.com).”
With use of the means test, the BAPCPA now has the option to completely dismiss a bankruptcy case or convert it to a Chapter 11 or 13 if it has determined “granting of relief would be an abuse of the provisions of this chapter” (U.S.Code § 707(b)).
Abuse is defined by the 11 U.S.C § 707 in two ways, “whether the debtor filed the petition in bad faith; or the totality of the circumstances (including whether the debtor seeks to reject a personal services contract and the financial need for such rejection as sought by the debtor) of the debtor’s financial situation demonstrates abuse.”
Pre-Filing Credit Counseling & Post-Filing Waiting Periods
This act has also made credit counseling and debtor education a requirement within 180 days of filing for Chapter 7 or Chapter 13. This can be done online by a certified counselor or by a counseling agency in an individual or group setting.
There are was also an extension made for the time period a Chapter 7 filer must wait before they are eligible to file again. Previously, the waiting period was 6 years between filings, but now has been increased to 8 years.
These are just some of the bigger changes that were made through BAPCPA. If you are considering filing for bankruptcy give Kalicki Collier a call and we can answer all of your questions about the options that are available to you.
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