BAPCPA: Your Rights When You File
Bankruptcy Abuse Prevention & Consumer Protection Act.
The Bankruptcy Abuse Prevention and Consumer Protection Act is the the main piece of legislation the sets the process when you file for personal bankruptcy. Set in 2005, it overhauled the personal filing process in order to prevent abuse. There was controversy at the time, which has continued through throughout the recession and recovery.
Fact: Hurricane Katrina led the Justice Dept. to provide means test exemptions for disaster victims.
But like it or hate it, BAPCPA is the law that determines how you’re bankruptcy filing will move forward. So it’s important to understand it if you plan on filing soon or think you may need to file i the future. With that in mind, the information below is designed to break down the BAPCPA in a way that’s easy to understand without all of the legal jargon.
If you still have questions or you need help getting started with your filing, call us or complete the form to the right to request help now. We’ll connect you with the professionals you need to move forward quickly and effectively.
The main reason the BAPCPA was put in place was to stop bankruptcy abuse – i.e. filing for bankruptcy as an easy way out of the debt problems you got into. The idea was that consumers were being irresponsible and running up debt they knew they couldn’t pay back and then filing for Chapter 7 for a quick exit as the “easy way out.”
So the BAPCPA was put into place to stop that abuse.
Defining abuse & determining eligibility
The Bankruptcy Abuse Prevention portion of the Act did one big thing – it created the means test as a way to identify potential abuse of the process. Basically, when you file for bankruptcy, your income is compared with the median income line in your state. If you want to file for Chapter 7 bankruptcy, you have pass the means test to be eligible. Otherwise, your filing can be dismissed or converted to a Chapter 13 filing.
Still, this doesn’t mean you should be scared that your filing will be rejected. If you legitimately need to file for bankruptcy, there shouldn’t be a problem. You should be able to make some kind of filing that you work out with the courts. Just avoid “bad faith” practices that might get you flagged for abuse, such as running up credit card debt to max out all of your cards the week before you file.
Mandatory credit counseling
Another big change with the BAPCPA was to initiate mandatory credit counseling for any consumer who wants to file for bankruptcy. Before you can file for Chapter 7 or Chapter 13, you must complete an accredited nonprofit credit counseling program no more than 180 days before you file. If you want to file, check with a bankruptcy trustee or administrator to find an approved program – or complete the form the right and we can connect you with a credit counseling service, too.
The BAPCPA also extends the rules on debts that can be exempted from discharge. With that in mind, it’s important to note the following:
- If you run up “luxury good” charges on a credit card in excess of $500 within 90 days of your filing date, it can be considered abuse, in which case that credit card would be exempted from discharge.
- If you take out more than $750 in cash advances on a credit card within 90 days of filing, it can be construed as abuse and exempted.
- All student loans are exempted from discharge – whether they are federal or private.
- Homestead exemption is also limited; it sets the amount of property you can exempt as well as how long you have to live there to qualify (to prevent moving to a different state for easier filing).
Limitations on lien avoidance
In the past, one of the advantages of bankruptcy was property lien avoidance. But the BAPCPA limited the property that can be exempted from liens by filing for Chapter 7 bankruptcy. You used to be able to protect things like works of art not created by you or a relative, jewelry more than $500 (not including your wedding rings) and cars or other vehicles. You can also only exclude a more limited number of electronics, including: one TV, radio, VCR, and a personal computer and associated accessories.
Where your rights get protected
Given all of the above, you might start to wonder why the second half of the name is even there. Where’s the “Consumer Protection” part of the Act?
Well, that’s in there, too. The law details new protections for consumers, starting with defining a consumer’s right to use an automatic stay to stop collections and court proceedings related to your debts. Basically, if you file for bankruptcy, collectors and creditors can’t pursue you or file court orders against you.
Does filing for bankruptcy stop foreclosure?
The automatic stay usually applies to foreclosure actions. It can also stop an eviction proceeding, as long as the landlord hasn’t obtained a judgement of possession.
Of course, the onus of informing your creditors of the filing falls on you. You are required to notice to your creditors within 90 days of filing. If you do and they violate the stay anyway, then you have a right to seek monetary compensation. But if you don’t provide notice, then creditors aren’t on the hook for violating a stay.
Bear in mind that the automatic stay may be limited (or waived completely) if you have had more than one bankruptcy filing in the past few years (particularly if you’ve had multiple filings in the same year).