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  New Bankruptcy Law of 2005 / BAPCPA -

     In 2005 Congress comprehensively overhauled the bankruptcy laws, in the form of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA") passed by Congress on April 20, 2005. Some of the provisions of BAPCPA went into effect immediately, but most went into effect for cases filed on or after October 17, 2005.

Bankruptcy Code Changes

     The bill represented a sea change from the Bankruptcy Code. Under BAPCPA, a multitude of new technical requirements were added, and the ability of debtors to obtain relief was made much tougher. BAPCPA was enacted in part due to a concern that the Code had favored debtors over creditors, and that an adjustment was needed. All new bankruptcy cases are filed under BAPCPA.

Means Test and Consumer Debtors

     The most significant change wrought by BAPCPA is the so-called "means test", which applies to consumer debtors, but not to those debtors whose debts are primarily business debts. In response to a perceived abuse of the bankruptcy system, the means test attempts to force higher-income individuals into Chapter 13 repayment plans or denying them relief altogether, by tightening the eligibility for Chapter 7 relief.


Key Provisions / New Bankruptcy Law

Some of the other key provisions under the new bankruptcy law of 2005 under BAPCPA include the following:

  • "Serial" Bankruptcy Filings --seek to limit repetitive or "serial" bankruptcy filings, by limiting the duration or existence of the automatic stay in subsequent cases, and increasing the required wait period between Chapter 7 discharges from 6 years to 8 years;
  • Credit Counseling Course --require consumer debtors, as a precondition to a bankruptcy filing, to undergo a pre-bankruptcy credit counseling course within 180 days prior to any bankruptcy filing; this course is for the ostensible purpose of educating debtors as to their options and providing possible alternatives to bankruptcy, such as an out-of-court repayment plan; it requires about 45 minutes to an hour of time, and is generally done on-line or on the telephone, at a cost of roughly $ 30-50; after the bankruptcy filing, but before they can receive a discharge, debtors must take a financial management course to learn more about their finances and how to possibly avoid further financial trouble in the future; both of these courses need to be taken through an agency approved by the Office of the U.S. Trustee in the district where the bankruptcy petition is filed, and the Court web sites maintain a list of approved agencies.
  • Debt Relief Agencies --define attorneys and others who counsel consumer debtors who have nonexempt assets of less than $ 150,000 as "debt relief agencies"; these agencies need to comply with numerous requirements, including:identifying themselves as such in their advertising and promotional material; making written disclosures to the client about the various chapters of bankruptcy, bankruptcy crimes, the effect of bankruptcy, and alternatives to bankruptcy including relief through credit counseling agencies; prohibiting them from advising clients to incur new debt in contemplation of bankruptcy or to pay for attorney's fees; forcing them in a Chapter 7 case to certify that they "have no knowledge after inquiry" that the financial information contained in the debtor's bankruptcy petition and accompanying schedules is incorrect; and mandating that agreements for services be reduced to writing within 5 business days after first providing service.
  • Cap on Homestead Exemptions --impose a nationwide $136,875.00 cap on homestead exemptions in certain circumstances, namely, where the property was acquired within 1215 days (3 years and 4 months) prior to the bankruptcy filing and the debtor's prior residence was in a different state; this was designed to limit an asset-protection strategy engaged in over the years by various noteworthy wealthy judgment debtors, who relocated their residences to states with more favorable (or unlimited money amount) homestead exemptions, like Florida and Texas, in order to shield assets from creditors.
  • Two Year Residency Requirement --impose a new 2-year residency requirement in order to claim a state's homestead exemptions; this provides for some curious results; a bankruptcy petition is required to be filed in the district in which the debtor resided for the 180-day period prior to the bankruptcy filing; however, if the debtor has not lived there continuously for 2 years prior to filing, then the debtor is bound by the exemption laws of the state where he resided 2 years prior to the bankruptcy filing.
  • Non-filing Spouses and Children--expand the protection available to non-filing spouses and children by making all obligations (not just support obligations) under divorce decrees non-dischargeable

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Written by Henry Rendler

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