Examining the Effectiveness of Bankruptcy Reform

Ten years ago this October, Congress passed a major overhaul of the bankruptcy code. Called the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), it was an effort to curb what lawmakers deemed “abuses” of the bankruptcy system. A decade later, the effectiveness of this law is difficult to measure. As a bankruptcy attorney, there is no doubt this was significant but whether it actually accomplished what it set out to do is debatable.

Perhaps the biggest change to the law was the introduction of the “means test.” Previously, individuals of any income levels were eligible to file Chapter 7 bankruptcy (unless barred by time restrictions). Now, a person’s monthly income is examined relative to the median in their individual state. If a filer earns more than the median, they are subjected to the means test which examines their ability to repay debt. If a filer cannot pass this test, they are forced to file Chapter 13 and repay at least a portion of their debt to their creditors.

Another change is the requirement that filers undergo “briefings” from credit counselors about their debt situation. These classes contain information about alternatives to bankruptcy, personal finance information, and more. The issue is that by the time most people seek bankruptcy protection, their situation is so dire that there aren’t alternatives. But consumers are still required to take these classes before they are eligible for Chapter 7.

The big question is whether this law has actually ended bankruptcy abuse. This is almost impossible to measure. There is no doubt it has resulted in fewer people filing for Chapter 7 and instead being forced into Chapter 13. But the majority of people who seek bankruptcy protection aren’t irresponsible people on a spending spree. Instead, they are people who have lost a job, gotten sick or injured, gone through a divorce, or undergone some kind of significant life change that resulted in substantial debt. These people were never abusing the system in the first place, so it’s hard to say that this law has been effective.

At Westbrook Law Group, we can explain how this law might impact your bankruptcy filing. We will examine your situation to see if the means test applies and help with calculations to determine your eligibility. We have helped many clients across St. Louis, St. Charles, and Lincoln County with serious debt problems. For a free consultation with a bankruptcy lawyer, contact Westbrook Law Group today.

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