The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) introduced major changes to the way consumers filed bankruptcy. The law placed more requirements on bankruptcy filings that made it more difficult and costly for consumers to file.
Here are some of the major changes the new bankruptcy law introduced:- Consumers must pass a means test to file Chapter 7 bankruptcy, the bankruptcy which discharges debts in full. The means test ensures the consumer is not abusing the bankruptcy privilege by attempting to avoid paying debts that he/she can afford to pay.
- A consumer who fails the means test - is able to repay their debts - must file Chapter 13 bankruptcy, the bankruptcy in which debts are repaid over a 5 year period.
- Anyone filing bankruptcy must receive consumer credit counseling six months before filing from an approved credit counseling agency.
According to the American Bankruptcy Institute, bankruptcy filings dropped significantly following the BAPCPA. Total bankruptcy filings in 2006 was 617,660. This was a 70% drop from 2005 total filings - 2,078,415.
The stricter requirements for Chapter 7 bankruptcy led to an increased percentage of Chapter 13 bankruptcy filings. In 2005, Chapter 13 bankruptcy filings represented about 20% of total filings. Post-BAPCA, Chapter 13 filings represented just more than 40% of the total.
