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Bankruptcy Abuse Prevention and Consumer Protection Act

Bankruptcy Abuse Prevention and Consumer Protection Act

The bankruptcy code was revised in 2005 with the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act ("BAPCPA").  President George W. Bush signed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 into law on April 20, 2005. Most of the provisions of BAPCPA went into effect 180 days after the day of enactment. Thus, October 17, 2005 was the effective date for the new law.

The revised bankruptcy code now requires consumer debtors to undertake means testing in order to qualify for Chapter 7 and as a starting point for determining a plan payment in Chapter 13.  Means testing is required for consumer cases only.  In cases where over 50% of the debt in a case is non-consumer debt (i.e. mortgage debt on an investment property or business-related debt), no means test is required.  Additionally, no means test is required in business Chapter 7 cases.

To perform the means test, the bankruptcy filer's pre-filing income is carefully calculated.  More specifically, the means test requires the calculation of 6 months of income (not including the month the case is filed) earned prior to the filing of the bankruptcy case.  The income must include all household income, including but not limited to both filing and non-filing members of the household.

BAPCPA incorporates IRS local and national income and expense guidelines into the consumer bankruptcy means test. Such guidelines include median income thresholds and maximum deductions for living expenses such as housing, health care, transportation and utilities.  If a filer's annualized 6-month income exceeds the relevant median income for the filer's household size then certain deductions are applied to the income.  If the "disposable income" (i.e. income less deductions) is negative then there is no "presumption of abuse" under bankruptcy law.  If the disposable income is positive, then a "presumption of abuse" may apply.  If a case is subject to a presumption of abuse, the case is subject to dismissal by the United States Trustee.

Other changes brought about by BAPCPA include modified homestead exemptions, waiting periods for multiple filings, credit counseling, limiting the automatic stay, and limitations on lien avoidance.

For a free consultation regarding BAPCPA, and how BAPCPA may impact your bankruptcy case, please feel free to call us at: (206) 442-9500.  If you prefer to submit your inquiry in writing, please email us at: [email protected]

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