Consumer Bankruptcy Law

In 2005, the U.S. Congress made some significant amendments to the existing Consumer Bankruptcy Law to form the Bankruptcy Abuse Prevention and Consumer Protection Act.

Purpose of the new Consumer Bankruptcy Law

The main purpose of this bill was to prevent the misuse of the existing law by making it more difficult for people to file for bankruptcy.  Debtors now have to file for bankruptcy under Chapter 13 wherein discharge is possible only after partial repayment. This is unlike the provisions of Chapter 7, wherein the debtor could discharge most of the debts incurred without any repayment.


Abuse presumption

The amended law has stipulated a method for calculating the debtor’s income.  This figure is then compared with the median income in the state of the debtor.  If his income is greater than the median income, a means test is conducted, wherein certain items are deducted for calculation of income.  Some of them are:

  • Living expenses specified by the Internal Revenue Service
  • Certain actual expenses not mentioned by the Internal Revenue Service like reasonable health insurance
  • Expenses incurred in the care of non-dependent members of the family
  • Donations to charities which are exempted from paying tax

Waiting period

Under the new consumer bankruptcy law, a debtor who files for bankruptcy under Chapter 7 will not be given a discharge for a period of eight years.  For Chapter 7 bankruptcy, the waiting period is six years.  No changes have been made for the waiting period for Chapter 3 bankruptcy.

Credit counseling

Under the new law, those who file under Chapter 7 or Chapter 13 should have received credit counseling within a period of 180 days before filing.  They are also required to attend a course on personal financial management.

Other than these, there are also provisions pertaining to automatic stay.

The new law also provides greater protection to creditors by including more items as exceptions to discharge.

Some new requirements under the Consumer Bankruptcy Law

Filers are now required to pay higher filing fees.  Also, attorney liability has increased, resulting in their charging higher fees.

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