Bankruptcy Abuse Prevention and Consumer Protection Act of 2005

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 brought many changes to federal bankruptcy law, and is the largest special interest legislation ever to be passed in the United States.

Major changes are to things such as, presumption of  abuse, the means test, filing wait periods, general requirements, limits to the automatic stay and exemptions, discharge ability, lien avoidance and limits to the homestead exemption. Many of these changes purposefully apply most directly to filing for Chapter 7 bankruptcy to reduce the number of cases. With this the number of Chapter 13 bankruptcy cases is expected to rise.

Major Changes

Chapter 7 Presumption of Abuse

This act changes the presumption of the filing party from one in favor of granting relief, to one of suspected bankruptcy abuse or fraud. It also adds addition fees through the requirement of a debtor education and credit-counseling course. These are required for filing petitions of all forms of bankruptcy, no matter what.

Time Limits Between Bankruptcies

The time between filings is now raised to eight years for Chapter 7 or Chapter 11 bankruptcy.

Lower Exemptions

Also for Chapter 7, certain exempt assets were reduced, limiting debtors to one radio, TV, VCR and computer, and previously unlimited, the homestead exemption is now available only to those with at least 40 months of residency prior to filing, and limits the total value to $125,000. The value of exempt jewelry and art was also reduced to $500.

Changes to Automatic Stay

Second and subsequent filings grant a creditor collection relief through the “automatic stay” for only 30 days, rather than unlimited, were created for all forms of bankruptcy. Other limits for all forms involved with discharge ability were created. Once limited to $1,225 within 60 days of filing, the value of luxury goods purchased prior to filing is now $500 for abuse and $750 for fraud within 90 days of filing.

Modifications to Chapter 13 Plans

In addition, credit card companies are now allowed to make modifications, even terminations, to debtor agreements that are included in a Chapter 11 or Chapter 13 bankruptcy repayment plan.

Moreover, for further filings, old credit card debt waived by a previous filing may sometimes be resurrected and placed into a new bankruptcy filing.

Impact and Problems

Though there are some benefits for those in debt with this act, such as increased protection of pension plans and employee benefits, the majority of changes a damaging to those in risk of bankruptcy, especially those with a great deal of debt who will wish to file for Chapter 7 bankruptcy. The changes regarding credit card debt have been especially criticized, but proponents argue that these stricter regulations are needed to cut back on consumer irresponsibility and fraudulent activity. The act also has a major effect on young adults because changes to discharge ability also affect student loans. Student loans may now only be discharged with a successful presentation of undue hardship inflicted by the loans to the bankruptcy court.

Get Legal Advice

Financial status and outlook is unique to every individual and business, and because of that, each case will be solved most effectively in its own manner. But this process can be difficult to determine because of bankruptcy law complexities and state specific regulations. Professional legal help can prove invaluable throughout the bankruptcy process. Specialized bankruptcy attorneys are familiarized with all related laws, and will be able to work through changes brought on by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005