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Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA)

Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA)

What Is the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA)?

The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005 is a piece of legislation that reexamined the United States Bankruptcy Code for cases filed on or after October 17, 2005. In April 2005, BAPCPA was passed by Congress and endorsed into law by President George W. Bush as a transition to reform the bankruptcy system.

Understanding the Bankruptcy Abuse Prevention and Consumer Protection Act

Under Chapter 7 bankruptcy, most unsecured consumer and business debts are forgiven or discharged. This bankruptcy plan likewise considers the liquidation and sale of certain assets by a designated trustee to repay creditors. On the other hand, bankruptcy filed under Chapter 13 expects debtors to repay a portion of the debt before a debt discharge is thought of. Chapter 13 bankruptcy expects debtors to restructure their debts and make a three-to five-year repayment plan, under which the debtor will utilize future income to pay off creditors in part or in full. The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) was acquainted with make it more hard for debtors to file for Chapter 7 bankruptcy and, all things being equal, force them to file for Chapter 13.

The Act made a bankruptcy means test that decides if individuals filing for bankruptcy can file for Chapter 7 bankruptcy, which discharges numerous debts in full โ€” or whether they must opt for Chapter 13 bankruptcy, which expects basically partial repayment of debts. Moreover, the Act increased the waiting period from when an individual last filed Chapter 7 bankruptcy to when they might file again to eight years.

BAPCPA and Chapter 7

Basically, the purpose of BAPCPA was to make it more hard for higher-income individuals to fit the bill for Chapter 7 bankruptcy by more closely looking at the filer's ability to repay their debts. The means test compares the debtor's month to month income to the median income (which relies upon the size of the household) in their state of residence and gives an allowance to assumed month to month expenses, not entirely settled by the IRS, as well as an allowance for actual month to month expenses.

Assuming the individual surpasses the median income and has some money left over in the wake of accounting for everyday costs, they typically won't fit the bill for Chapter 7 bankruptcy. In effect, three results are conceivable from the means test:

  1. A debtor will breeze through the means assessment if their month to month disposable income is under $136. They will, along these lines, have the option to file for Chapter 7 bankruptcy easily.
  2. A debtor will fail the test on the off chance that their disposable income every month is more than $227. In this case, they must continue under Chapter 13.
  3. On the off chance that a debtor's disposable income lies somewhere in the range of $136 and $227 each month, the income ought to be duplicated by 60 (BAPCPA's assumption that the debt will be paid off in roughly five years, or 60 months). On the off chance that the subsequent value can cover somewhere around 25% of the non-priority unsecured debt, the debtor will fail the test. Any other way, they can continue to file for bankruptcy under Chapter 7.

Consumers and businesses that plan to file for bankruptcy must complete an accredited nonprofit credit counseling program something like 180 days prior to filing.

To complete a means test, a debtor must submit either Form 122A โ€” 1 for Chapter 7 or Form 122C for Chapter 13 to the Bankruptcy Court before the court will hear the case.

BAPCPA additionally set in place mandatory credit counseling for consumers and businesses seeking file for bankruptcy.

To stay away from expected abuse of the bankruptcy system, BAPCPA absolves certain debts from discharge. A portion of these debts are:

  • More than $750 in cash advances on a credit card required out in something like 90 days of filing
  • More than $500 charged on a credit card for luxury goods in something like 90 days of filing
  • All federal and private student loans

Most studies that have investigated the effectiveness of BAPCPA to reform bankruptcy have inferred that the profile of consumer bankruptcy debtors hasn't changed. This recommends that the means test has not prompted all the more major league salary debtors giving more payments to creditors. All things being equal, it is possible that those in need are just deferring seeking bankruptcy relief.

BAPCPA and IRA Protections

The enactment of BAPCPA brought about another change: federal protection for individual retirement accounts, or IRAs. Albeit federal bankruptcy laws have long protected 401(k) plans, pensions, and comparable employer-sponsored, qualified retirement plans, before BAPCPA was passed, IRA protections were defined at the state level, or not the least bit. After the law's section, individuals in each state were managed the cost of bankruptcy protection for IRA assets.

Protection under BAPCPA differs, contingent upon the type of IRA. Traditional IRAs and Roth IRAs are presently protected to a value of $1,362,800, with adjustments for inflation made like clockwork (the next adjustment is in 2022). SEP IRAs, SIMPLE IRAs, and most rollover IRAs are fully protected from creditors in a bankruptcy, no matter what the dollar value.


  • The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), passed in 2005, is a law that reformed the personal bankruptcy process in the U.S.
  • Under BAPCPA, filing for Chapter 7 personal bankruptcy turned out to be more troublesome as additional rigid rules and qualification requirements were defined.
  • The goal was to forestall the bankruptcy cycle from being abused and to energize Chapter 13 filings rather than the seriously lenient Chapter 7.
  • Certain retirement assets โ€” including traditional and Roth IRAs โ€” were given federal bankruptcy protection interestingly under BAPCPA.