Bowing to pressure from the large banks and credit card companies, Congress has passed the inaptly named "Bankruptcy Abuse Prevention and Consumer Protection Act of 2005."  This new act is often referred to BAPCAPA.

With sometimes arrogant disregard for the facts about debt and debtors in bankruptcy, lobbyists and executives for the consumer credit industry convinced Congress that abuse was rampant in bankruptcy, that many debtors were using bankruptcy as a “first resort” to avoid paying creditors and that courts were not doing enough to police the bankruptcy system. 

The bill of goods they sold Congress was based on the faulty premises that debtors were all dishonest and could not be trusted, that their attorneys were conspirators in the bankruptcy abuses and could not be trusted and that bankruptcy judges could also not be trusted, as shown by the facts that they sometimes ruled in favor of debtors against banks and credit unions.  BAPCAPA was therefore designed to reduce access to bankruptcy by making bankruptcy more costly, more complicated and less efficient.  This was done by increasing documents that must now be filed or retained by attorneys, requiring new certificates, adding new deadlines and hearings and generally placing new obstacles to Chapter 7 entry and Chapter 13 confirmation.

BAPCAPA was poorly drafted and is full of inconsistences leading to illogical results that will have to be sorted out by litigation in the coming years.  Some of the most glaring changes are as follows:

• All debtors must now qualify for bankruptcy under a “Means Test”, an illogical complicated formula that is supposed to weed out from Chapter 7 debtors who make too much money and can afford to pay their bills.  Debtors who do not pass the Means Test cannot file Chapter 7 and must either dismiss their bankruptcy or convert to a Chapter 13 reorganization bankruptcy where the Means Test is supposed to control the length of the plan and the amount of the monthly payment.

• All debtors must have gone to a certified credit counseling agency  to be offered a repayment plan before they can file a bankruptcy.  A certificate from the agency showing compliance with this requirement must be filed with the bankruptcy.

• All debtors must complete a debt management class before they can receive their bankruptcy discharge.

Bankruptcy Code provisions regarding what property is exempt (i.e. what you can keep) have changed, especially regarding your home in Arizona.  If you have moved to Arizona in the last two years, you may find that rather than using the exemption laws of Arizona, you may have to use the less liberal exemption laws of the state of your prior residence.

If you have dismissed a bankruptcy in the last year, the protections of the automatic stay are greatly reduced.

The time between when you can file a new Chapter 7 if you have previously obtained a Chapter 7 discharge is increased from 6 years to 8 years. 

The types of taxes that can be discharge in a Chapter 13 without full payments has been greatly reduced. 

The amount of paperwork required of attorneys and the attorneys liability for omissions in the papers filed with the court has greatly increased in an effort to make attorneys price themselves out of the market.

The need for bankruptcy will not go away. Bankruptcy attorneys will just need to work much harder to help those in need. As a certified bankruptcy specialist, I recognize this and will continue to work hard to protect my clients in financial distress.