The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) was enacted to update and change the existing bankruptcy laws of the United States Bankruptcy Code. The law, notwithstanding the title, makes it more difficult for consumers to file bankruptcy and offers very few, if any, protections. Here’s what you need to know.

History of Bankrutpcy Act

Initially designed in the late 1990s, various Representatives tried to pass the bill many times before 2005. It was actually passed in 2000 and President Clinton refused to sign it. It attracted various irrelevant political amendments that prevented it from passing for several years.

Eventually, the BAPCPA was passed on April 14, 2005, and signed by an enthusiastic President George W. Bush. It applied to cases filed on and after October 17, 2005. Our office was open nights and weekends preceding the change in the law, so folks could file under the old, cheaper and more consumer friendly law.

Changes to Bankrutpcy Filing Requirements

The changes to the Bankruptcy Law were pushed by the banks and credit card companies to make it more difficult for ordinary folks to file for bankruptcy protection. First, the law requires each applicant to take a “Means Test” which we have explained in detail in The Means Test Demystified . The Means Test is set up to prevent folks who make more than the median income in their state from filing without further proving that their particular needs necessitate bankruptcy protection.

Second, the BAPCPA has built in “assumptions of abuse” which make it harder for a consumer to qualify for bankruptcy and easier for US Trustees and creditors to knock someone out, once filed. Under the Means Test, there is a presumption of abuse if the debtor has $182.50 of monthly income available after Bankruptcy Code allowed deductions.

Third, the BAPCPA made it more difficult for consumers because it required that a Chapter 7 petitioner wait 8 years, not the 6 years which was required before the law, between filings. This has a profound effect on folks who lose a house or business due to poor economic times and need a fresh start.

The Credit Counseling Class

Fourth, the BAPCPA requires that petitioners take two classes online, at a cost to the petitioners. First they must take a class entitled “credit counseling.” This class is not difficult, and clients have told us that it is somewhat informative, but it provides one more restriction and roadblock that the banks have setup. And this test must be taken before we can file the Bankruptcy Petition. The second “class” is called the “financial management” class and it must be completed before a discharge can be granted. An initial study undertaken by the Government Accounting Office, a non partisan wing of Congress, determined that the credit counseling requirements “may often serve more as an administrative obstacle than as a timely presentation of meaningful options.” Nevertheless, it remains.

Unfortunately, these aren’t the only restrictions.   There are many other restrictions too numerous to discuss here.  Filing for bankruptcy is not easy.  Hiring an experienced bankruptcy attorney can help.

Hire an Experienced Bankruptcy Lawyer

Finally, BAPCPA also puts additional requirements on bankruptcy attorneys. The burden of checking and verifying all of the debtors contentions now fall on their own attorneys; we have to investigate our own clients before filing. And guess who pays for that? Correct, the consumer. The average cost of a bankruptcy prior to the BAPCPA was $500 to $1000; today it’s a multiple of that. Why? Because the paperwork is vastly more difficult and more time consuming. While we enjoy the challenge, we know it prevents some of our clients from filing: it’s just too expensive and burdensome. Nevertheless, we conclude that notwithstanding the new law, almost all of our clients will qualify for Massachusetts bankruptcy protection.

Why hire a lawyer?  The BAPCPA makes bankruptcy a difficult process.  An experienced bankruptcy lawyer will be able to maximize your exemptions, advise you on how to undertake pre-bankruptcy planning, explain how the Homestead will work for your situation, and be sure that the petition and schedules are properly filed.  You want an experienced bankruptcy attorney who files bankruptcy claims for clients on a regular basis.  The attorneys at Burns & Jain know the law and have worked with clients just like you for over 25 years.  The initial consultation is free.  Call Burns & Jain today:  617-227-7423.