Four Years after BAPCPA: Bankruptcy Remains a Powerful Tool for Consumers Struggling with Unmanageable Debts Skip to main content

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Four Years after BAPCPA: Bankruptcy Remains a Powerful Tool for Consumers Struggling with Unmanageable Debts


The four-year anniversary of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) is right around the corner. You might recall all the hype in the months leading up to the enactment of BAPCPA. This was the banking and credit industry's seventh attempt to get the legislation on the books. They pitched BAPCPA as necessary to curb "rampant abuse- and to restore "personal responsibility and integrity- in the bankruptcy process. With the Bush Administration at the helm of a Congress chock full of conservative lawmakers, the banks and credit card companies finally clinched a large enough sympathetic audience to bring its agenda to life.

BAPCPA called for sweeping changes to the Bankruptcy Code -“ undoubtedly the most significant overhaul of the Code since it was enacted in 1978. The depth and complexity of the changes caused much confusion, uncertainty, and speculation about what protections would be left for consumers in the new world of consumer bankruptcy practice. This sparked a mad dash to file bankruptcy before the new laws went into effect on October 17, 2005. So what does this new world of bankruptcy practice look like four years after BAPCPA took effect? Did the banking and credit industry get its money's worth for the billions it spent marketing the legislation?

Well, one thing's for sure: the new laws did make it more expensive and difficult for consumers to take advantage of the protections that bankruptcy has historically provided. But one of the primary things BAPCPA's backers hoped to achieve was to force more debtors out of Chapter 7 liquidation and into repayment plans under Chapter 13. The primary mechanism to achieve this goal was a set of eligibility thresholds for Chapter 7 based upon a person's income -“ particularly BAPCPA's now-infamous "means test.- Generally, if your income exceeds the median income for a family of your size in your state, or if your monthly disposable income is more than $100, you're presumed ineligible for Chapter 7.

BAPCPA's backers were betting these new rules would sharply reduce the number of Chapter 7 cases, so debtors would ultimately have to pay back more of their debt. But despite the sweeping "reform,- the numbers have remained pretty much the same. Between 1999 and 2004, before BAPCPA was enacted, the average percentage of cases filed under Chapter 13 was 29 percent. Initially, in the first year after BAPCPA, the percentage of Chapter 13 filings rose. But, by this year, the numbers had returned to pre-BAPCPA levels: in fact, during the first seven months of 2009, the average percentage of Chapter 13 cases was actually lower -“ 27.6 percent.

Here's another interesting fact: The United States Trustee's Office reviewed the Chapter 7 filings between October 17, 2005, and June 30, 2006, and determined that 94 percent of the debtors automatically qualified for Chapter 7 under the means test -“ based upon their income alone. Another 5.4 percent qualified when their expenses were taken into account. That is, 99.4 percent qualified for Chapter 7; only 0.6 percent were presumed abusive filers under BAPCPA's new rules. This likely explains why the percentages of Chapter 7 and Chapter 13 cases have remained fairly consistent: the vast majority of those who file for Chapter 7 meet the new strict income requirements.

It also appears that BAPCPA credit counseling requirements have had little impact on the number of filings, other than to make the process more expensive and time-consuming. The Government Accounting Office issued a report finding that "by the time most consumers receive credit counseling, their financial situations are dire, leaving them with no viable alternative to bankruptcy.- In addition, the National Federation of Credit Counseling has found that less than four percent of potential filers choose not to file bankruptcy after attending the required counseling.

As far as the overall number of consumer bankruptcy filings, while the total number of filings dropped in the first year after BAPCPA was enacted, they have steadily climbed back to their historic levels. In fact, with the current economic downturn -“ which kicked in less than two years after BAPCPA came on line -“ so many people are seeking bankruptcy protection that the filings are beginning to rival the figures we saw during the mad dash to file before BAPCPA was enacted.

Much to the chagrin of those who footed the massive bill to push BAPCPA through Congress, the numbers show that the vast majority of those who need the protection of Chapter 7 will still seek that protection -“ and qualify for it. The numbers also suggest the backers' central platform for marketing BAPCPA -“ that people were routinely abusing Chapter 7 -“ was groundless, or at least greatly exaggerated.

Bankruptcy is back! -“ despite the efforts of the banking and credit industry to stifle filings through BAPCPA. With the help of an experienced bankruptcy attorney, you too can use the power of bankruptcy to eliminate debts that have made your life unmanageable.

In North Carolina, contact the Law Offices of John T. Orcutt, with convenient office locations in Raleigh, Durham, Wilson, and Fayetteville. The firm offers a free debt consultation, as well as affordable payment plans for both Chapter 7 and Chapter 13 cases. Call (toll free) +1-919-646-2654 or visit for more information.

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