The Bankruptcy Abuse Prevention & Consumer Protection Act Unfortunately for many who have struggled with their finances, the laws regarding filing for bankruptcy changed in 2005, and the immediate effect of these changes was to make it more difficult for consumers to file for bankruptcy protection under this chapter and to discharge their debts. The law was and remains extremely controversial. Critics of the law have stated that it’s an enormous positive for credit card companies.
Basically, the Bankruptcy Abuse Prevention and Consumer Protection Act affected all Chapter 7 filings in terms of extra steps involved with determining the eligibility for protection under this chapter and placing conditions on the debtor before debts are discharged.
The extra steps involve obtaining credit counseling before filing and completing a personal finance management course prior to the debts being discharged. The real difficulty was presented by the means test. This test basically states that if a person filing for protection under this chapter earns an income that’s less than the state’s median number, he or she is eligible to file for protection under Chapter 7 of the Bankruptcy Code. However, if the income is above that number, the means test applies, and it is quite confusing.
Basically, if the debtor’s projected disposable income, which is monthly income minus certain allowable expenses, over the next five years is less than $6,000 ($100/month) he or she would be eligible to file under Chapter 7. If the debtor’s monthly income at the time of filing minus the allowable expenses and multiplied by 60 (the number of months for the next five years) is more than the lesser of 25% of the debtor’s non-priority unsecured claims in the case or $6,000, whichever is greater; or $10,000, the court will presume that abuse exists. While special circumstances can still be offered for eligibility, this ‘presumption of abuse’ allows either for the dismissal of the case or a conversion of the case to either a Chapter 13 or a Chapter 11 filing.
Filing under Chapters 11 or 13 will mean that generally, the creditor will see more of the debt paid back, but all told, these new requirements only affect approximately 15% of all filings under Chapter 7 of the United States Bankruptcy Code.