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Bankruptcy Abuse Prevention And Consumer Protection Act (BAPCPA)
Bankruptcy abuse prevention and consumer protection act, also known by the acronym BAPCPA, refers to legislation that made a significant revision to the United States Bankruptcy Code. BAPCPA was passed by Congress in April 2005 and signed into law by President George W. Bush, who was then the president of the United States. The move was to make reforms in the bankruptcy system with a major focus on abuse prevention.
A Little More on What is the Bankruptcy Abuse Prevention And Consumer Protection Act (BAPCPA)
In the United States, bankruptcy is a matter of the federal jurisdiction as per the United States’ constitution. It is found under Article 1, section 8, Clause 4 of the constitution. Under this provision, Congress has permission to enact laws related to bankruptcies across the United States.
So, Congress using this provision in the constitution has been able to enact statutes governing bankruptcy. The enacting is in the form of a Bankruptcy Code known as Title 11 of the United States Code.
Also, individual states have the authority to enact their own bankruptcy laws. Although bankruptcy-related cases are often filed in the federal court, they are also partly dependent on state laws. A good example is the exemptions related laws.
Generally, the BAPCPA is an improvement law that contains several sections that affect individuals and businesses who want to file for bankruptcy. Note that most of the provisions of this act are based on cases filed either on or after October 17, 2005.
What Functions Does Chapter 7 Bankruptcy Serve?
Chapter 7 of the Bankruptcy Act, serves the following functions:
- It discharges or pardons the business and consumer debts
- It allows the sale and liquidation of particular assets, by a selected trustee, for the purpose of paying off creditors.
Note that though individuals and businesses can file a chapter 7 bankruptcy, there were some changes made in the act regarding the waiting period. For instance, an individual will have to wait for eight years since the last filing of chapter 7 bankruptcy to be able to file again.
About Chapter 13 Bankruptcy
When it comes to chapter 13 bankruptcy, it is a requirement for debtors to repay part of the debt to be able to qualify for a discharge consideration. The debtors should also do debt restructuring so that they can create a repayment plan of about 2-5 years. The plan enables the debtors to use their future income to partly or fully pay off their creditors.
Note that Congress passed the BAPCPA, to prevent some consumers from filing bankruptcy under chapter 7 but instead, make use of chapter 13. Filing bankruptcy under chapter 13 ensured that creditors are paid back their money. It is contrary to chapter 7, which discharges debts in full a move that disadvantages the creditors.
BAPCPA Bankruptcy Means Test
A noted above, chapter 13 requires the debtor to at least pay part of the debt before discharge consideration. What does this mean for creditors? Chapter 13 guarantees creditors that they will at least recover part of their money from debtors. So, what this bankruptcy chapter basically does is to protect the interest of the creditors.
So, to block businesses and individuals from filing chapter 7 bankruptcy, the BAPCPA created a bankruptcy means test. The test is to help determine whether individuals or businesses filing for bankruptcy actually qualify for Chapter 7 bankruptcy. Those who don’t qualify will instead file for chapter 13 bankruptcy. The mean test was purposely created to help examine the fillers’ ability to service their debts.
How to Determine BAPCPA Bankruptcy
To determine an individual’s chapter 7 bankruptcy filing eligibility, there is the administration of the means test. Here they compare the debtors’ monthly and median income.
During this process, the debtors’ household sizes are put into consideration depending on their state of residence. The move gives allowance for the supposed monthly expenses and actual monthly expenses as per the rates of the Income Revenue Service (IRS).
Where an individual surpasses the median income, and after accounting for his expenses, he has some cash left, this individual is usually not eligible to file a chapter 7 bankruptcy.
Which are the two Mean Test for BAPCPA?
Key provisions in BAPCPA requires consumers to participate in and get a certificate in the following tests, which will act as evidence of completion:
- Pre-bankruptcy credit counseling: This can be a group or an individual briefing where those consumers or businesses that want to file for bankruptcy undergo. Debtors should complete a counseling program that must occur within 180 days ahead of the bankruptcy filing. Only an accredited credit counseling and nonprofit budget agency should conduct the counseling.
- A pre-discharge education course: Debtors must do the course before a discharge of Chapter 13 or 7 bankruptcy. A consumer (a debtor) must first submit either form 22C for Chapter 13 or 22A for chapter 7 to the bankruptcy court before the hearing of the case.
BAPCPA also has some exemptions known as bankruptcy exemptions. The exemptions put into consideration the property a debtor should retain or preserve during the bankruptcy process. For instance, there may be an exemption on some real and specific property under ‘Schedule C’ of the debtors’ bankruptcy forms. Such are kept out of the bankruptcy estate of the debtors.
However, it is worth noting that bankruptcy exemptions apply only to those individuals filing for bankruptcy. Other entities, such as municipalities or corporations, are not eligible for bankruptcy exemptions.
There are two systems used when you want to exempt property from a bankruptcy estate. They are as follows:
- Federal exemption (This type of bankruptcy exists only in a number of states)
- State exemption (This type of bankruptcy exemption varies from one state to the other).
Generally, those who file bankruptcy claiming exemptions must have all the agreed exemptions. They should be according to their bankruptcy courts as well as by their creditors. Note that the exemption process is usually complicated. So, it is advisable to involve an attorney who will help you to go through the process of bankruptcy exemption process successfully.
Reference for “Bankruptcy Abuse Prevention And Consumer Protection Act”
Academics research on “Bankruptcy Abuse Prevention And Consumer Protection Act”
A legislative history of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Jensen, S. (2005). A legislative history of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. Am. Bankr. LJ, 79, 485.
Trying to Make Sense Out of Nonsense: Representing Consumers Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Sommer, H. J. (2005). Trying to Make Sense Out of Nonsense: Representing Consumers Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. Am. Bankr. LJ, 79, 191.
Constituional Issues Posed in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Chemerinsky, E. (2005). Constituional Issues Posed in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. Am. Bankr. LJ, 79, 571.
The Creeping Repeal of Chapter 11: The Significant Business Provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Levin, R., & Ranney-Marinelli, A. (2005). The Creeping Repeal of Chapter 11: The Significant Business Provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. Am. Bankr. LJ, 79, 603.
Impact of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 on Chapter 13 Trustees, Hildebrand III, H. E. (2005). Impact of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 on Chapter 13 Trustees. Am. Bankr. LJ, 79, 373.