In 2005, Congress passed what is known as the Bankruptcy Abuse Prevention and Consumer Protection Act, or BAPCPA, to cut back on what were seen as unnecessary bankruptcy filings. As government agencies attempted to combat a wave of Chapter 7 filings that were viewed as insincere ways to discharge debt without trying to actually work through financial issues, Congress settled on a law that provides significantly stricter standards for this basic form of bankruptcy.
There were major changes made to some of the most basic tenets of bankruptcy, namely to number of necessary steps before bankruptcy can be filed. Under the new bankruptcy laws, an additional step involving credit counseling has been added, requiring anyone wanting to go through bankruptcy to go through counseling sessions. The intent of these counseling sessions is to improve financial education among the bankrupt, although their efficiency has been doubted by some government watchdog agencies.
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In addition to credit counseling, debtors must now qualify for bankruptcy before filing. Under the means test, as it is known, a debtor is rejected from applying for Chapter 7 bankruptcy if their monthly income is higher than the median income of the state they are residing in. As with any major changes to the bankruptcy code, there are several exemptions and different factors that can a person's eligibility to file for bankruptcy.
In order to make the process more prohibitive to those who would abuse the bankruptcy code, BAPCPA restrictions also impose greater creditor protections in terms of debt discharge. Currently, expenses that trigger fraud protection have been lowered, meaning that spending too much on something that is not considered essential by the court can result in a debtor losing the ability to discharge that debt.
For more information about BAPCPA, contact a bankruptcy attorney.
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