In 2005 Congress passed a law that changed the way bankruptcy works. This law was known as the Bankruptcy Abuse Prevention and Consumer Protection Act ("BAPCPA"). One of the purposes of this law was to cut down on the number of Chapter 7 bankruptcy filings. The major additions to the law are:
A MEANS TEST which helps to determine eligibility of filing based upon their income.
MANDATORY CREDIT COUNSELING which is reuqired before you file your Bankruptcy paperwork.
MANDATORY DEBTOR EDUCATION which provides fundamentals to avoid the mistakes which initially led to bankruptcy.
TAX RETURN COPIES must be provided to the Trustee of the case.
REAFFIRMATION AGREEMENTS are now required for debtors who wish to keep collateral on a debt.
LIMITATIONS ON SUCCESSIVE FILINGS & REPEAT BANKRUPTCIES now exist to keep people from "serial" filings.
AUDITS OF BANKRUPTCY CASES are now employed in .04% of consumer cases. Failure to cooperate with an audit exposes the debtor to a possible revocation of their discharge.
BAPCPA was created by lobbyists for the credit card and banking industries. These lobbyists assumed that many bankruptcy filers could afford to pay back some of their debt because they were making a sufficient amount of money. One of the bills sponsors actually stated bankruptcy pre-BAPCPA functions such that "deadbeats can get out of paying their debt scott free while honest Americans who play by the rules foot the bill." As it turns out, this is actually something of a misconception.
MEANS TEST UNDER BACPA
As a result, BAPCPA contains the means test. The means test helps to determine whether somewhat makes enough disposable income to qualify them to pay back some of their debt in a Chapter 13 plan.
Actually though, the lobbyists had it wrong, the vast majority of people who file Chapter 7 have little or no income to spare. As a result, most people who want to file for a Chapter 7 bankruptcy qualify to do so under BAPCPA.
MANDATORY CREDIT COUNSELING SECTION 109
Within 180 days (6 months) of filing bankruptcy, the debtor must have had an individual or group briefing from an approved nonprofit budget and credit counseling agency. There is a small exception for cases where the debtor was not able to get a briefing within 5 days of the request or there are exigent circumstances.
These courses are often found online and they are approved by the U.S. Trustee. A list of approved agencies is available at http://www.usdoj.gov/ust/eo/bapcpa/ccde/cc_approved.htm.
MANDATORY DEBTOR EDUCATION
You will not receive a discharge unless you also complete a personal financial management course. The course helps you identify and correct those financial missteps that lead to bankruptcy.
The bankruptcy court can theoretically waive the requirement for credit counseling and/or attending a financial management course if the Court finds that the individual is unable to complete those requirements because of incapacity, disability, or active military duty in a military combat zone.
However, there are few other acceptable reasons for the waiving of the requirement and those filing bankruptcy should assume that they will be required to complete the courses.
TAX RETURN COPIES REQUIRED
Section 521 requires that the debtor provides a copy of his or her most recent tax returns to the trustee and a creditor that requests a copy prior to the 341 meeting. Trustee offices vary somewhat on their policies for people who have not filed taxes.
REAFFIRMATION AGREEMENTS
BAPCPA reverses the holding in In re West, 882 F.2d 1543 (10th Cir. 1989). In re West permitted the debtor to "retain and keep current."
Now, the debtor must reaffirm, redeem or surrender the collateral of a debt within 30 days after the 341 meeting. A failure to do so within 45 days after the 341 meeting results in a termination of the automatic stay! This means the creditor can pursue a collection action against the debtor!
If a creditor violates the stay with a good faith belief that the Debtor did not file a statement of intention or otherwise did not take the action reflected in the statement, recovery is limited to actual damages only.
Disclosures are required to be given to any debtor who reaffirms a debt. There is a temporary presumption arises that a debtor cannot afford to enter into a reaffirmation agreement if the debtor's income less the debtor's expenses results in insufficient funds to make the payments, unless the creditor is a credit union.
If such a presumption arises, the court may disapprove a reaffirmation agreement, even if the debtor is represented by an attorney.
LIMITATIONS ON SUCCESSIVE FILINGS & REPEAT BANKRUPTCIES
A chapter 7 debtor will not get a discharge if he or she received a chapter 7 or 11 discharge within 8 years (the existing period is 6 years).
In chapter 13, a debtor may not be granted a discharge if the debtor obtained a discharge in a chapter 7, 11 or 12 case during the previous 4 years from the filing of the present case and two years if a prior chapter 13 case was filed. The debtor can still file the chapter 13 although a discharge may not be obtained.
Section 362 now also states that if a Chapter 7, 11, or 13 case is filed within one year of the dismissal of any earlier case, then the automatic stay ends 30 days after filing unless a party in interest demonstrates that the second case was filed in good faith.
If a second filing occurs within the same one year period, the automatic stay will not go into effect unless a party interest demonstrates that the filing was in good faith.
AUDITS OF BANKRUPTCY CASES
CPAs or licensed public accountants usually audit 0.4% of all consumer cases. If the debtor does not cooperate then that is grounds for the court revoking the discharge!
These Audits are very real and those attempting in any way to misrepresent or mislead the court or their attorney should be quite wary of doing so. The Department of Justice ultimately oversees these audits and infractions are dealt with severely.