10 Big Changes that the Bankruptcy “Reform” Law Brought

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Happy 8th Birthday to the Bankruptcy Abuse and Consumer Protection Act, also known as BAPCPA (pronounced “BAP-SEA-P-A”, if you’re interested). Enacted by Congress in 2005, it became effective on October 17, 2005, so virtually every bankruptcy lawyer in Pittsburgh, and for that matter, in America, was working day and night on the week prior to the law change.

So, why is the 8th birthday important? Because if you filed a Chapter 7 just before that date, you’re only just now able to file a new Chapter 7 if you’ve incurred new debts. One of the important changes that BAPCPA brought was that it lengthened the periods between bankruptcy filings.

Here are some other changes that we thought were big back in 2005:

1) Pre Filing Counseling; this is the requirement that every person filing a case had to complete an hour-long Pre Bankruptcy Counseling session with a non-profit Consumer Credit organization. Yes, it’s raised the cost of filing. Most of these sessions cost between $25 and $50, and there’s a mandatory requirement. My take: I occasionally hear clients tell me that the counseling provides helpful budgeting tips, but ultimately, the requirement is not such a big deal, but it has raised the cost of filing.

2) Financial Management Course; this is the mandatory two-hour financial education course that all people must take prior to their cases being approved for discharge. A lot of my clients contend that it’s a waste of time. I wish it would be eliminated, but ultimately, it’s not been as much of a big deal as we thought.

3) Means Testing. This is the biggest change in BAPCPA. In all consumer cases (not business cases), we now must focus on the “household income” received during the immediately-preceding six month period. This is to determine the “Current Monthly Income”. Never mind that you may have lost your job last week; it’s still a test that must be examined. The means test was the instrument by which Congress (and the credit card industry) hoped to keep higher-income folks from filing bankruptcy at all, or at least from filing Chapter 7 cases. Yes, this is still a big deal, but not as much as it was back around 2006 and 2007 when we (and the Courts) were still figuring out the law. The means test provisions were poorly-drafted, but fortunately Bankruptcy Court Judges and Trustees have for the most part used common sense.

4) Higher Filing Fees and Legal Fees. Prior to October 2005, the filing fee for bankruptcy was $210. After BAPCPA, it was raised to $295 and now it’s $335 for a Chapter 7 and $310 for a Chapter 13. Attorneys fees too have increased due to all the increased work associated with a typical case. For many people, the higher fees have had an impact.

5) Domestic Support Obligation Verification. BAPCPA requires the Trustees to inquire as to whether a bankruptcy filer is obligated to pay child or spousal support or any “domestic support obligation”. Moreover, the Trustee has to inform the recipient of the support about the bankruptcy case filing. The thought was that if the Court uncovered assets, then the support recipient could file a claim and get paid. In the past 8 years, I’ve never seen this theory actually work in practice. My opinion: a waste of time and not a big deal.

6) Changes with Discharges. BAPCPA made it significantly more difficult to discharge (wipe out) student loan debts as well as a variety of other debts, including condominium fees. It also eliminated the Chapter 13 “super-discharge” of certain taxes debts. All of this is indeed a big deal and has affected people.

7) Debt Relief Agencies. BAPCPA clearly was aimed at annoying bankruptcy attorneys, particularly those who represent debtors. We now have to provide the preposterous statement that we are “debt relief agencies who help people file for bankruptcy.” Nope, not a big deal. Oh, I am so glad that Congress spends its time worrying about big issues in life.

8) Bankruptcy Attorney Duties. BAPCPA worried us at first about the new obligations that it imposed upon Debtor’s Counsel to verify assets and disclose to prospective clients their duties to list assets and to properly value them, among other things. I’d have to say that attorneys have adjusted fairly well to these requirements. I believe that the best provision in the law was to require all attorneys to provide a written fee agreement to prospective bankruptcy clients. Ultimately though, all these new duties haven’t been all that imposing.

9) Automatic Stay Changes. There were a host of changes made to the automatic stay of the Bankruptcy Code. In short, it took attorneys a while to figure out, for example, how to “extend the stay” in the event that we had a client who wished to file a new Chapter 13 case in the same year that his previous case was dismissed. This was a big deal for a while, but it’s no longer that worrisome.

10) Better Protection for Retirement Funds. My favorite new provision from BAPCPA pertains to the ability to protect (exempt) retirement account funds in bankruptcy cases. Prior to 2005, we were required to investigate exactly what type of retirement account that someone owned. After 2005, the federal exemptions were extended to virtually all retirement funds, and as a result, it’s become much easier to protect those retirement assets. Yes, a very big deal.

So, 8 years in. This isn’t a full list of the BAPCPA changes. Get back to me about questions and comments.

4 Comments on “10 Big Changes that the Bankruptcy “Reform” Law Brought”

  1. You are putting some great information out on the web for the public. I would expect the public will appreciate your expertise and call you for bankruptcy questions.

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