BAPCPA 2005

Back to Basics: BAPCPA and a Brave New World for Bankruptcy Lawyers

This is the second post in a series called “Back to Basics” in which we’re going to examine both bankruptcy and consumer law from the point of view of the consumer who is looking for a basic understanding of these subjects. Today’s post: BAPCPA — the 2005 Act that changed the landscape of bankruptcy in significant ways.

BACPA In Broad Strokes

The 2005 Bankruptcy Abuse Prevention and Consumer Protection Act brought howls of protest from the consumer bankruptcy bar. Lawyers who represented individuals in bankruptcy saw overwhelming flaws in the legislation from a technical perspective, and what they viewed as an unfair and unwarranted attack on consumers in the new law, which had been written in large part by the pro-creditor lobby.

Among the many problems with the new law pointed out by the consumer bankruptcy lawyers:

• The “Debt Relief Agency” provisions: these provisions apparently sought to regulate speech and conduct of attorneys who provided bankruptcy assistance to clients in what most of us see as an unconstitutional attempt to restrict the advice we can give our clients. The provisions are broad, vague, and confusing, and at least a few judges have expressed the opinion that the provisions don’t apply to lawyers, while others say that they do. This confusion is a hallmark of the judicial and attorney response to the Act.
• The means test: this new addition to the bankruptcy laws provides a first-ever entry bar to Chapter 7. Debtors had to prove that their income was below the median income for a similar household size in their state, or otherwise prove that their entry into Chapter 7 was not an “abuse” of the code’s provisions. This is done through a complicated means test purportedly designed to see if the debtor can afford to repay his or her debts.
• Massive paperwork requirements: the documentation requirements of both attorneys and debtors increased considerably with the new act, increasing exponentially the amount of time it took to conduct a case, and thus increasing the costs for debtors.

The Creditor Response

Some creditors and collection agencies deplorably took advantage of the new law to deceive consumers with coercive demands for payment. Many lawyers reported to professional organizations and bar associations that their clients were receiving dunning calls from collectors who insisted “bankruptcy was repealed” and “if you file for bankruptcy, you’re committing a crime and we’ll make sure you get prosecuted.”

This had the perhaps unintended consequence, however, of galvanizing the debtor bar, who in large numbers took to the editorial pages and blogs on the web in an attempt to educate consumers about how their rights had — and had not — been impacted by the new law.

The Bottom Line

Bankruptcy is, in fact, more complex and in some cases a lot more expensive than it used to be. This much is unquestionably true.

But bankruptcy was not repealed; it was not criminalized; and it did not provide that homeowners could not file for bankruptcy protection — all claims made by some collectors to individual debtors in the days following its passage and enactment.

Most consumers will find that they do have a choice still — Chapter 7 or Chapter 13. While many consumers will be pushed into Chapter 13, those debtors will in fact still have some discretion and freedom in creating their payment plans to submit for approval by the court. With the assistance of a skilled attorney, these debtors should still find considerable relief.

© 2008 SC Bankruptcy & Consumer Law Blog.