Most of us have heard of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. This Act was both recent and had a major impact on bankruptcy laws as we knew them. However, there is quite a bit of important legislature that led us to where we currently are.
In 1979 the Federal Bankruptcy Code was enacted. The primary purpose of the Federal Bankruptcy Code was to protect consumers. Within less than a year the Consumer Credit Industry began to voice their unhappiness with the Federal Bankruptcy Code. They felt this enactment was unfair to creditors.
This led to the Bankruptcy Amendments and Federal Judgeship Act of 1984. As it turns out, these amendments were not all that helpful to creditors. In fact, they were more beneficial to consumers, although they did increase the amount of paperwork to be filed by debtors.
Only a couple of years later, The Bankruptcy Judges, United States Trustees and Family Farmer Bankruptcy Act of 1986 was passed. Under this Act, more Bankruptcy Judges were assigned to the Judicial Districts and a United States Trustee system was put into place. The United States Trustees are there to oversee and aid the with the administrative duties of both the individual trustees and the Court.
Under the 1994 Bankruptcy Reform Act, a National Bankruptcy Review Commission was created to decide whether or not changes to the Bankruptcy Code should be made. The commission decided to double the amounts of Federal Exemptions, make cost of living adjustments and increase Chapter 13 limits. Congress also overruled quite a few of the Supreme Court’s decisions regarding mortgages in Chapter 13s. The 1994 Reform Act was detrimental to consumers in regards to reaffirmation agreements and the increased time and cost necessary to file bankruptcy.
On April 20, 2005 George W. Bush signed The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA or “the new bankruptcy law”). This act effected almost all aspects of bankruptcy cases. It reduced the rights of debtors and created difficulties for bankruptcy attorneys. The act specifically made it harder for debtors to file a Chapter 7, by creating “means testing.” The means test is essentially a calculation of a debtor’s current monthly income. Only debtors whose current monthly income falls below their state’s median income can file a Chapter 7 without a presumption of abuse of the Bankruptcy Code. Current monthly income is defined as a debtor’s average income over the 6 month period prior to the filing of the bankruptcy. Debtors whose income is above their state’s median must file a Chapter 13.
Under BAPCPA Debtors are also now required to take credit counseling courses both before and after the filing of their case. The act also placed restrictions on applicability of the Automatic Stay for debtors who had previously filed a bankruptcy. Among other things, the act created additional filing fees, stricter notice requirements and increased attorney liability. Overall the Bankruptcy Abuse Prevention and Consumer Protection Act was not necessarily favorable for debtors and their attorneys.