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Bankruptcy Abuse Prevention and Consumer Protection Act of 2005

As the name suggests, part of the motivation behind the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was a perception that the bankruptcy laws had been abused in order to escape legitimate debt that should have, or could have been paid. While most people still qualify for protection under the bankruptcy laws, here is a list of some of the effects of the new law.

  • Most people must undergo credit counseling prior to filing. However this is quick and may be cost-free. Be aware, there have been claims that counselors have tried to convince people to arrange payments rather than filing for bankruptcy protection.
  • Court costs have been raised. Filing fees for Chapter 7 liquidation have risen as much as 50% with a similar increase for Chapter 13 debt reorganization.
  • More complex attorney work may be required and my result in higher legal fees. This has had the effect, for many people, of preventing them from filing, even if they qualify.
  • You may be required to pay more of your debts than you would have under the old law.
  • There are new liability risks for lawyers. They must make a “reasonable inquiry” into the reasons for filing and personally attest to the accuracy of information provided by the bankruptcy applicant. One result of this could be that pro bono legal assistance may become difficult or impossible to find.
  • New exceptions to the “automatic stay” have been added and some existing exceptions have been expanded. For example, the automatic stay will no longer apply to eviction actions and the domestic relations exception, which governs legal actions for family law matters such as child support, has been expanded.

Analysts differ over the results so far. Proponents say few have been prevented from filing and that effects are not drastic. Critics point to obstacles described above. They say 96% of people who want to file are indeed eligible, which proves they are desperate and not just trying to escape debts they could otherwise pay.

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