The “New” Bankruptcy Law
In 2005, Congress enacted BAPCPA, the Bankruptcy Abuse Prevention Consumer Protection Act, in light of the growth in bankruptcy filings and creditor outcry that debtors were supposedly “abusing" the bankruptcy system. The following major changes were made:
- You must qualify to file under Chapter 7. This was probably the biggest change in the bankruptcy law. The new law requires you to qualify to file under Chapter 7, the simplest, fastest form of bankruptcy, and which requires no payments to the court. (NOTE: The new law does NOT disqualify anyone from bankruptcy. The question is under which chapter they must file.) In order to prevent abuse, Congress wanted to make sure that those who filed for Chapter 7 really do not have enough money to pay some or all debts in Chapter 13. Qualification is based on your annualized “current monthly income” (CMI): an average of your gross income over the last six months before the filing. To qualify for Chapter 7 either: 1) Your CMI is below the median income for a household of your size in your state, or 2) Your net income, after standardized expenses based upon US Census data, is less than a specific minimum set by law (that is you qualify under this so-called "Means Test." You can use this calculator to estimate you eligibility, but since this is new law and under continuing interpretation by the courts, you should consult an experienced bankruptcy lawyer to be sure regarding your eligibility.
- Pre-filing credit counseling requirement. To discourage debtors from filing for bankruptcy in the first place, Congress enacted a requirement that the debtor must do a session with an approved credit counseling agency to see if a debt management plan (DMP) can be worked out prior to filing for bankruptcy. You are not required to actually enter into and perform a debt management plan. Furthermore, in the vast majority of case, no feasible debt management plan can be created anyway. However, if you as a debtor do not fulfill this requirement and do not provide a certificate to the court your case will be dismissed.
- Post-filing financial management course. To discourage debtors from re-filing for bankruptcy more than once, Congress enacted a requirement that the debtor take a post-financial management course (PFM) prior to receiving a discharge in the case. If you as a debtor do not fulfill this requirement your case will be closed without a discharge. Most debtors are reporting to this firm that the personal financial management course is useful.
- Increase time between re-filings. Congress has increased the amount of time you must wait to file consecutive Chapter 7 filings that will discharge your debts from six to eight years. Likewise, where before one could file for Chapter 13 relief immediately after obtaining a discharge in Chapter 7. Now that person must wait four years, and two years if the prior discharge was in a Chapter 13 case.
- Reduce Debtor’s Options to Deal With Collateral. The new law reduced debtor’s flexibility to “cram down” (reduce or eliminate liens) on collateral which guarantee a secured loan. Under the new law, “cram down” of a lien to the actual value of a personal automobile is not permitted if the loan is one that was used to purchase the car within 910 days (about 2 ½ years) before the bankruptcy filing. Or if the loan was used to purchase “any other thing of value,” reducing the lien is not permitted if it was within one year before the bankruptcy. Note that work vehicles are not included in the prohibition.