Bankruptcy Abuse Prevention and Consumer Protection Act

Continuing from the front page, we will now highlight some of the new amendments of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). Again, to go into affect as of October 17, 2005.

The qualification abilities have changed. The bankruptcy attorney will actually administer a “means test” established by the IRS. The “means test” is different for every state. Part of the new “means test” requires that you disclose, or file if you haven’t filed, your most recent tax return, to verify your actual earned income. You have to have below the average income in your state to fail the “means test”. For example, living in South Dakota, and if you are single, that income is $27,000.00 per year and it increases for a family. If you are below that then you fail and you will be able to file a Chapter 7, which in essence erases your debts, and you walk away. Under Chapter 7 bankruptcy you will be able to wipe out all your unsecured debt, such as your credit card debt and personal loans, but will still owe all your secured debt, including your mortgage. If you are above the $27,000.00 you will be required to file a Chapter 13 re-organization and you will have to pay back the debts over a 60-month period. The court may order you to eliminate or reduce unnecessary spending.

Another important reformation requires all applicants receive credit counseling and budget analysis by a nonprofit credit counseling agency within 180 days prior to filing. The Executive Office for U.S. Trustees (EOUST) must approve the agencies that qualify to administer the credit counseling. Counseling can be provided in person, on the phone, or through the Internet.

There are a few exceptions to this rule. Persons on active military duty in a combat zone are exempt from counseling. Those who are not physically able to participate in a counseling session or that are incapable of making rational financial decisions due to mental illness are not required to take credit counseling. The bankruptcy judge can waive counseling if the agencies in a specific district are deemed inadequate to meet the services of individuals.

Along with the pre-bankruptcy counseling, debtors will have to complete a Financial Management Course. The course will provide the consumer with educational information covering budget, savings, money management, and consumer information. These programs aim to educate debtors on previous mistakes and to prevent future financial mistakes.

The applicant is required to file a certificate from the credit counseling agency describing the services provided, and file any debt repayment plan developed with the agency. The applicant is only required to file the certificate if the applicant chooses to continue with Chapter 13 bankruptcy. The goal is to have a credit counseling agency accomplish an affordable repayment plan similar to a Chapter 13 without the mark of a bankruptcy, and ultimately reduce the number of uneccessary bankruptcy filings.

During the counseling process, if a creditor refuses to reasonably work with an agency and debtor, resulting in having to file Chapter 13, then that creditor will receive less (up to 20%) from the debtor than a creditor who is willing to cooperate. This is referred to as a reduced claim to creditors.

Here are a few other important bankruptcy changes taking place on October 17.

If you are filing for Chapter 13 bankruptcy you will have to pay the full loan amount owed on your car loan regardless of the condition of the car. Previously you only had to pay what your car was worth (“blue book” or fair market value).

Bankruptcy attorneys must now certify your financial statements to the court and will be held financially responsible if the statements are false.

The filing fee has increased from $155 to $200 for Chapter 7, but decreased from $155 to $150 for Chapter 13. (Note: This is just the fee to file for bankruptcy – it is not the fee that attorneys will charge for legal work done on your behalf.)

Under the new law, if you have filed for Chapter 7 bankruptcy you may not file for Chapter 13 within four years of the Chapter 7 being discharged. Current law allows debtors to file a Chapter 13 bankruptcy immediately following a Chapter 7 bankruptcy in order to pay remaining outstanding debts.

Hopefully this helps you to better understand some of the important changes in the bankruptcy laws.

This information is not provided, or to be taken as legal advice. If considering Bankruptcy it is important to contact an attorney for any questions. The BAPCPA contains many provisions and circumstances, depending on each individual and the state that they reside in.

Pioneer Credit Counseling is a bonded, non-profit credit counseling agency offering debt management programs, financial counseling, bankruptcy counseling and housing counseling nationwide. Call our friendly counselors today at 800-888-1596 or visit

Our accredited credit counselors will help you take control of your financial life and get out of debt faster than you can on your own. We offer a debt management program that will stop the collections calls, lower your monthly payment and provide you peace of mind. Our pre and post bankruptcy counselors provide an easy process for you so you can focus on rebuilding your financial being.

It is our policy at Pioneer Credit Counseling not only to help people get out of debt, but also educate in sound budgeting practices.

Pioneer Credit Counseling can help you get out of debt faster. Find out how through one of our Debt Management | Debt Management Programs | Credit Counseling | Financial Counseling | Housing Counseling | Bankruptcy Counseling | Financial Educational Materials

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