On April 20, 2005, President Bush signed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), which instituted substantial changes to the Bankruptcy Code. Most provisions of BAPCPA became effective in October 2005. In an effort to exclude from Chapter 7 relief those debtors deemed to have the ability to pay at least some of the debts that would otherwise be discharged in Chapter 7, BAPCPA tightened the eligibility requirements for Chapter 7 and broadened the court’s power to dismiss Chapter 7 petitions for “abuse.” If you are considering filing for Chapter 7 bankruptcy and have questions about whether you will qualify, call today to schedule a consultation with a bankruptcy lawyer.
One of the most significant aspects of the new bankruptcy laws is the means test for individuals with primarily consumer debts who wish to file for Chapter 7. Under § 108(8) of the Bankruptcy Code, a consumer debt is “primarily for a personal, family, or household purpose.” If the debtor is above the threshold established by the means test, his or her Chapter 7 petition may be dismissed, or the case could be converted to a filing under Chapters 11 or 13, if the debtor consents.
If the debtor’s current monthly income is less than the state median, the debtor automatically qualifies for Chapter 7. If the debtor’s current monthly income is more than the state median income, the means test will be applied to determine if filing for Chapter 7 is presumptively abusive. This step is a bit tricky. If the debtor’s projected disposable income, which is monthly income minus certain allowable expenses, over the next five years is less than $6,000 ($100/month), you are eligible to file under Chapter 7. However, if the debtor’s current monthly income minus the allowable expenses and multiplied by 60 (the number of months for the next five years) is more than the lesser of (1) 25 percent of the debtor’s non-priority unsecured claims in the case or $6,000, whichever is greater; or (2) $10,000, the court will presume that abuse exists. 11 U.S.C. § 707(b)(2)(A)(i). If this is the case, the debtor will not be allowed to file for Chapter 7 unless he or she can show special circumstances, such as a “serious medical condition or a call or order to active duty in the Armed Forces, to the extent such special circumstances that justify additional expenses or adjustments of current monthly income for which there is no reasonable alternative.
BAPCPA includes a number of additional requirements for a debtor seeking to file under Chapter 7. Individual debtors are now required to obtain an individual or group briefing from an approved nonprofit budget and credit counseling agency within 180 days of filing for bankruptcy. 11 U.S.C. § 109(h). This briefing must, at a minimum, outline opportunities for available credit counseling and assist the debtor in performing a budget analysis. Another critical requirement is that prior to receiving a discharge, a Chapter 7 debtor must complete a personal financial management course. 11 U.S.C. §§ 111, 727(a)(11). Section 521(e) requires that debtors filing under either Chapter 7 or 13 provide a copy of their most recent tax return to the trustee before the meeting of creditors. The debtor must also provide a copy the tax return to any creditor that requests one. Finally, before a debtor submits documents to the court or a trustee, the debtor and his or her attorney must make a reasonable inquiry under the circumstances to verify that the information, legal arguments and factual contentions contained in such documents are not being presented for any improper purpose, are well grounded in fact and are warranted by existing law. Fed. R. Bankr. P. 9011.
The trustee’s duties were also expanded under BAPCPA. Under sections 704(a)(10) and (c)(10), the trustee must advise a domestic support creditor in writing of the existence of and right to use support enforcement and collection agencies. The trustee must also provide notice of such claims to those agencies. If the debtor was serving as an administrator of an employee benefit plan at the time of filing, the trustee must perform the duties of an administrator. 11 U.S.C. § 704(a)(11). If a debtor is a health care business, the trustee must use “all reasonable and best efforts” to transfer that business’s patients to another such business in the same physical area that provides substantially similar services with a reasonable quality of care. 11 U.S.C. § 704(a)(12).
Speak to an Experienced Bankruptcy Attorney
Although BAPCPA has made it more difficult for individuals with consumer debt to file for Chapter 7 bankruptcy, it is still possible, and the majority of debtors still qualify for Chapter 7 relief. An experienced bankruptcy attorney can determine whether you qualify for Chapter 7 and help you navigate the requirements for filing.
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