History of Bankruptcy – Part 11

Written by: Robert DeMarco
United States Bankruptcy Laws – The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”) (Pub.L. 109–8, 119 Stat. 23, enacted April 20, 2005) was actually first drafted in 1997 and was passed by the 109th United States Congress on April 14, 2005 and signed into law by President George W. Bush on April 20, 2005..  The House of Representatives approved a version titled the “Bankruptcy Reform Act of 1999″ and the Senate approved a slightly different version in 2000.  After reconciliation, Congress passed the “Bankruptcy Reform Act of 2000″, but President Clinton, vetoed the bill by waiting for the “lame-duck Congress” to adjourn without signing it.  The bankruptcy bill was subsequently re-introduced in each successive Congress, but was continuously shelved due to significant opposition and threats of a filibuster.  Things changed in 2004 as the Republicans took control of both the Senate and the House of Representatives.  The revised bankruptcy bill was introduced by the chairman of the Senate Finance Committee, Republican Senator Chuck Grassley of Iowa and was supported by President George W. Bush. The bill passed by large margins:  302-126 in the House; and 74-25 in the Senate.  The Bill was later signed by President Bush.
BAPCPA made several significant changes to the Bankruptcy Reform Act of 1978. Some of the more significant change BAPCPA made to the Bankruptcy Reform Act of 1978 are as follows:
Means Testing:  BAPCPA implemented a process of means testing in an effort to limit access to the bankruptcy process.  The means testing focuses primarily upon a variety of budget issues such as income, household expenses, car payments, house payments and the like.  However, the means test is not based entirely upon reality.  The means test allows for the prospective debtor to make use of certain actual expenses (i.e. mortgage payments), but otherwise requires the use of standardized expenses (i.e. vehicle maintenance).  Depending upon the results of the means test there could arise a presumption of abuse which must be rebutted if the bankruptcy is to proceed.
Automatic Stay:  The automatic stay provisions of the Bankruptcy Reform Act of 1978 were modified significantly by BAPCPA.  There is now a presumption that repeat filings constitute bad faith and require the party seeking to impose the stay (usually the debtor) to rebut the presumption by clear and convincing evidence.  BAPCPA also limited the applicability of the automatic stay in eviction proceedings.
Credit Counseling:  BAPCPA also requires that all individual debtors (chapter 7, 11, or 13) complete a credit counseling course as a condition precedent to filing bankruptcy.  Further, chapter 7 and 13 debtors must, as a condition to obtaining a discharge, complete an instructional course concerning personal financial management.  11 U.S.C. §§ 727(a)(11); 1328(g)(1).
Discharge:  BAPCPA also provided more protections to creditors because it expanded the exceptions to discharge. The presumption of fraud in the use of credit cards was expanded.  BAPCPA amended § 523(a)(8) to broaden the types of educational (“student”) loans that cannot be discharged in bankruptcy absent proof of “undue hardship.” The nature of the lender is no longer relevant.  Thus, even loans from “for-profit” or “non-governmental” entities are not dischargeable.
Moreover, the Chapter 13 “super-discharge” that was available under the 1978 Bankruptcy Code is greatly reduced under BAPCPA.  As such, BAPCPA no excepts from discharge in a chapter 13 most tax obligations and debts stemming from fraud and false statements; unscheduled debt; obligations stemming from defalcation by a fiduciary; domestic support obligations; student loans; damage claims stemming from drunk driving injuries; criminal restitution and fines; and damages rewarded for willful or malicious personal actions causing personal injury or death.
Exemptions:  BAPCPA made significant changes to the exemption provisions that existed in the Bankruptcy Reform Act of 1978.  One purpose in doing so was to prevent prospective debtors from forum shopping.  Exemptions define the amount of property a debtor may protect from levy and garnishment.  Typically, every state has exemption laws that define the amount of property that can be protected from creditor collection action within the state, and as one can imagine each state’s exemption laws differ. Further, there is, depending on the state, a federal exemption statute that that might be used in bankruptcy cases.
Under BAPCPA, a debtor who has moved from one state to another within two years of filing (730 days) the bankruptcy case must use the exemption laws from the place of the debtor’s domicile for the majority of the 180 day time period preceding the two years (730 days) before the filing [11 U.S.C. § 522(b)(3)]. If the new residency requirement would render the debtor ineligible for any exemption, then the debtor can choose the federal exemptions.
BAPCPA also, implemented a “cap” on homestead exemptions.  Where the prospective debtor, within 1215 days (about 3 years and 4 months) preceding the bankruptcy case added value to the homestead  in excess of $125,000 that value cannot be exempted. The only exception is if the value was transferred from another homestead within the same state or if the homestead is the principal residence of a family farmer [11 U.S.C. § 522(p)].  This “cap” would apply in situations where a debtor has purchased a new homestead in a different state, or where the debtor has increased the value to his/her homestead (presumably through improvements or paying down the mortgage).
Thus is the terse and convoluted history of American Bankruptcy Law. While it might not be the most glamorous of tales to tell, it was critical to the development of trade and commerce in the western world. “The power of establishing uniform laws of bankruptcy is so intimately connected with the regulation of commerce, and will prevent so many frauds, where the parties or their property may lie, or be removed into different states, that the expediency of it seems not likely to be drawn in question.” Madison, James, The Federalist No. 42, The Powers Conferred by the Constitution Further Considered (Tuesday, January 22, 1788).
DATED:  July 11, 2013
1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11