Bankruptcy Abuse Prevention and Consumer Protection Act of 2005

Among the various reasons to avoid bankruptcy, one of the most important reason that has come up recently is the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). The law introduced some new changes in the way a consumer filled bankruptcy. The laws imposed few additional requirements on bankruptcy filings that made it more difficult and costly for consumers to file. The glance of the BAPCPA Act 2005 is summarized below:

• After coming up of the BAPCPA Act a debtor need to go through a means test before filling a Chapter 7 Bankruptcy (the bankruptcy which discharges the debts in full). The means test ensures that a consumer is not abusing the bankruptcy privilege and he is really not in a position to repay his debts.

• Anyone fails in the means test means that he - is able to repay the debts - and must file Chapter 13 bankruptcy, the bankruptcy in which debts are repaid over a 5 year period.

• A debtor filling a bankruptcy must go through a consumer credit counseling at least six months before filing, from an approved credit counseling agency.

The survey revealed that bankruptcy filings had been dropped significantly after the introduction of the BAPCPA. The statistics shows that total bankruptcy filings in 2006 were 617,660 which was a 70% drop from 2005 total filings - 2,078,415. This is just because of the strict requirements for chapter 7 filling that led to the increased percentage in filling of chapter 13 bankruptcies filling. The chapter 13 filling had showed an increase of 40% while it had declined considerably in case of chapter 7 filling.