The BAPCPA Today

The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005, was suppose to eliminate the abuse of the bankruptcy system and clarify which debtors could file Chapter 7 Bankruptcy.

The mood at the time, led mostly by conservative lobbyists who represented various creditors in the banking industry, was to stop the perceived abuse of bankruptcy filings by the deadbeats who were trying to use the system for their own benefit.

Lobbying groups insinuated some debtors were abusing the system by running up large debts and escaping with their assets, due to liberal state and federal exemption laws. With the economy beginning to waiver, the lobbyists convinced Congress the bankruptcy laws should be updated. According to many bankruptcy judges and trustees, the changes to bankruptcy laws did little to eliminate the problems and may have actually made things worse.

What is wrong with the legislation? There are problems with the means test, which is used to determine if an individual, group, or business qualifies for Chapter 7 Bankruptcy.

Chapter 7 Bankruptcy, commonly called a “liquidation bankruptcy”, is the simplest and quickest form of bankruptcy. It is available to individuals, married couples, corporations, and partnerships. A court-appointed trustee gathers and sells non-exempt property, and uses the proceeds from the sale to pay the debtor’s creditors.

Debtors whose income is below the state’s median income are not subject to the means test. If the debtor’s income is above the state’s median income, a means test calculator is provided to calculate whether their income is too high to file for Chapter 7 Bankruptcy. Those who cannot pass the means test may be allowed to file Chapter 13 Bankruptcy and repay a portion of their qualifying debts with a 3 to 5 year debt repayment plan.

There has been some confusion and controversy about the means test.  At the center of the controversy is the method used by the U.S. Bankruptcy Court for addressing the use of projected disposable income (PDI), disposable income (DI), and current monthly income (CMI).

On the official means test form, B-22A, the definitions are addressed in one manner to determine CMI and expenses, and in Forms I and J, they are addressed in different manners. These differences result in two different disposable incomes. Unfortunately, the Courts are divided on the definitions and usage, and the Supreme Court has recently made a ruling on part of the problems, but the ambiguities still exist.

Over 1.5 million people filed for bankruptcy last year with no significant drop in Chapter 7 Bankruptcy filings. The BAPCPA has not reduced bankruptcy filings, but it has created problems. Bankruptcies cost more to file and lawyers’ fees have more than doubled, online credit counseling is the norm, and the pace of personal bankruptcies is growing, nearing 2004 pre-reform levels.

Bankruptcy laws can be complicated, and you may need the expertise of a bankruptcy lawyer. If you need relief from the stress of debt and you live in or around the metropolitan area of Newark, New Jersey, contact us at .We will help you find a bankruptcy attorney in your area who will answer your bankruptcy questions.

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