Eligibility For Bankruptcy – Bankruptcy Abuse Prevention and Consumer Protection Act of 2005

The Bankruptcy Abuse Prevention And Consumer Protection Act of 2005 (BAPCPA) was introduced in the year 2005 with the intention of bringing about changes in the way consumers could file for bankruptcy. This law made the rules more strict and requirements most stringent for consumers to file for bankruptcy. It also made the proceedings more expensive to complete. Some of the major changes that were brought about by the bankruptcy abuse prevention and consumer action act of 2005 or:

consumers who are required to pass a means test to file chapter 7 bankruptcy which means that they need to prove that their income is not about the state median income for a particular family size. If their income is above the median income then they are not allowed to file for a chapter 7 bankruptcies. This test ensures that the consumer is not abusing the bankruptcy privilege is by trying to avoid paying the debts that he can afford to pay back.

The consumer who fails the means test and hence is determined to be able to pay back his debts must file chapter 13 bankruptcy instead which usually has a repayment plan which lasts for 3 to 5 years.

Receiving consumer credit counseling from a government approved credit counseling agency not later than 180 days before filing for bankruptcy is mandatory for all consumers who are filing.

According to the American Bankruptcy Institute bankruptcy filings dropped significantly following the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. While the total bankruptcy filings in 2005 were 2,078,415, it reduced to 617,660 in the year 2006 which is the reduction of 70%.

This law also resulted in an increase in the number of chapter 13 bankruptcy filings as opposed to chapter 7 bankruptcy filings. One number of chapter 13 bankruptcy filings in 2005 made up around 20% of total bankruptcy filings, in 2006 after the implementation of Bankruptcy Abuse Prevention and Consumer Protection Act the chapter 13 bankruptcy filings constituted more than 40% of the total bankruptcy filings.

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