The Bankruptcy Abuse Prevention and Consumer Protection Act: What You Need to Know

Filing for bankruptcy can be a confusing and stressful process. In 2005, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act to make several changes to bankruptcy laws. Supporters said it would prevent abuse of the system. But consumer advocates argued it would make it harder for average folks to file. So what does this law actually do?

Well, the BAPCPA made it more complicated to file for Chapter 7 bankruptcy, which wipes out most debts. Now there’s a “means test” to see if your income is low enough. If it’s too high, you have to file under Chapter 13 instead. That means you get a repayment plan to pay back some debts over 3-5 years.

Not everyone thinks the means test is fair. Judges have complained it’s too complicated! But the idea is to make sure people who can repay some debts don’t use Chapter 7. Supporters say it prevents abuse. Critics argue it hurts poor and middle-class families.

The BAPCPA also requires credit counseling before filing. You have to take an approved course on managing finances. Then there’s a financial management course before debts are discharged. Supporters say this teaches people money skills. But critics argue it’s an obstacle that costs time and money.

There are also new limits on automatic stay protections. These stop collection calls and lawsuits while a bankruptcy is pending. The law aimed to prevent repeat filings to halt collections. But consumer advocates say this change removes critical protections for families in need.

The BAPCPA made other reforms too. Student loans are harder to discharge. People with high incomes must file Chapter 13. Documentation rules got stricter. Supporters say this reduces fraud and abuse. But critics argue it assumes bankruptcy filers are dishonest, not in need.

So what’s the bottom line on this law? Well, bankruptcies dropped after it passed. But not everyone agrees why. Supporters say the law worked as intended. But critics argue it made filing too hard for many in need. And some say the drop was temporary from families filing early to avoid the law.

The truth is, the BAPCPA has pluses and minuses. On one hand, it tries to prevent misuse and teach financial skills. That sounds helpful! But it also puts up barriers that hurt poor families most. And some changes seem more symbolic, based on stereotypes, not facts.

There are good arguments on both sides. But our take is the law tried to solve some real issues. But it went too far in other ways. Common sense reforms to fix issues, while protecting families in need, seems like the fair path forward. The law aimed to achieve that balance. But there’s still room for improvement.

Filing bankruptcy is a tough choice and a last resort. Families facing it are under enough stress. The system should provide fairness, protection and a path forward. Not needless barriers based on assumptions. With some common sense tweaks, we think the BAPCPA could achieve that goal.

The bottom line: Understand your rights and options if considering bankruptcy. Get the facts, not myths. Consult an attorney to understand the law. If it seems unfair, make your voice heard. The system should work for average Americans, not against them. There’s still room for positive reforms that achieve that.