Bankruptcy has long been an option to individuals and businesses that cannot repay their debts. In the United States, bankruptcy is designed to be the fairest possible process to filers, creditors, and other parties involved. However, since 2005, the consumer bankruptcy process changed significantly with the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) and the establishment of the Means Test and other laws. This act limited individual qualification for chapter 7 bankruptcy, but it also helped streamline and simplify parts of the court process as a whole. If you are considering filing for bankruptcy and don’t know where to start, Behm Law Group Ltd. can help. We provide comprehensive legal protection and guidance for Chapter 13 and Chapter 7 bankruptcy filings in Mankato, MN, and the local areas.
For at least ten years before the BAPCPA was put into place, the issue of bankruptcy abuse in the United States was becoming more significant. Filers could choose to file for Chapter 7 bankruptcy with little to no limitations on their income-to-debt ratios and have debts discharged quickly. Because of this, it was the impression of many in Congress that people were taking advantage of the bankruptcy system and were too flippant about filing for bankruptcy relief. In short, many in Congress believed that filing for chapter 7 bankruptcy relief had become too easy and that the process had become very unfair for the creditors involved.
In addition to fewer limitations for one to file for Chapter 7 bankruptcy relief before the BAPCPA was enacted, filers were not required to undergo a pre-bankruptcy filing credit counseling course. According to the BAPCPA, filers must now undergo a credit counseling course with a court-approved agency within 180 days before filing their bankruptcy petition.
The most significant change the BAPCPA enacted was the Means Test, which created a mathematical formula of determining whether a filer qualifies for Chapter 7 liquidation or Chapter 13 reorganization. The Means Test measures a filer’s income and debt amounts. If a person’s projected monthly income for a household of their size is equal to or lower than the state median or average income of a similar-sized household, the person will qualify for Chapter 7 bankruptcy. If their projected income is higher than the state median or average income for a similar-sized household, the filer can only file for Chapter 13 bankruptcy.
In addition to stricter rules for qualifying for Chapter 7 bankruptcy and the credit counseling requirement, the BAPCPA also extended the period of time that needs to pass before one can file for chapter 7 bankruptcy relief again. With the enactment of the BAPCPA, the waiting period was extended from six to eight years. So, if someone filed for Chapter 7 bankruptcy relief on January 1, 2016, that same person could not qualify for chapter 7 bankruptcy relief again until January 2, 2024.
These are two of the main changes the BAPCPA created in the bankruptcy law, but there were several other changes made to protect creditors, such as limiting automatic stay provisions and lien avoidances, establishing stricter case dismissal rules, and changing bankruptcy exemption allowances.
Overall, with the passage of BAPCPA bankruptcy filers are unable to choose to file for Chapter 7 bankruptcy unless they satisfy the means test and meet certain other requirements. These limitations help the bankruptcy process maintain fairness and balance between the interests of creditors and bankruptcy filers and they help to prevent many types of potential bankruptcy fraud.
To learn more about how filing for Chapter 13 and Chapter 7 bankruptcy in Mankato, MN, and the surrounding areas will impact your debts and other financial circumstances, contact Behm Law Group Ltd. by calling (507) 387-7200 or emailing stephen@mankatobankruptcy.com today.
