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Case Study: The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA)

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Case Study: The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA)

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, (BAPCPA)

plays the role of the proverbial sentinel to the relief discharging chapter 7 of the bankruptcy

code. This Act stipulates that a debtor is restricted from progressing on a chapter 7-bankruptcy

case if they have a monthly disposable income that can be used to cover the debt. Approximation

of this is done through the means test calculation and determines whether the debt will be

dismissed or not. If a debtor wishes to pursue their case under chapter 7, then they must prove

special circumstances agreeable to Section 707(b) (2) (B) of the bankruptcy code. This Act has

clearly made the entire bankruptcy process more difficult and thus ensured that all debtors

eventually pay their debts.

The means test is intended to act as a prediction of whether a debtor had extra income to

support paying off their debts. The test uses mathematical applications to calculate the amount

that a debtor could pay a creditor over the lifespan of a plan under chapter 13 (Perez, 2013). If a

debtor's calculations exceed the median, at approximately, $ 207. 92, then they are triggered as

abusers of the code. Also, debtors with as little as $ 124 could be triggered. This test ensures that

only the honest debtors are approved for bankruptcy under Chapter 7.

The intent of the provision of special circumstances in the Act was to safeguard and

ensure that debtors with no ability to pay their debts were not denied relief through Chapter 7

bankruptcy after the means testing (Ashcraft et al., 2007). The extraordinary interpretation and

rigorous application of this provision ensure that any debtor applying for bankruptcy under

Chapter 7 meet the standards set in the Act. Otherwise their case is dismissed as an abuse of the
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bankruptcy code. Thus, by laying evidence-finding burdens on the debtors, it eliminates any

potential abuse and ensures that only honest debtors succeed in filing a bankruptcy case under

chapter 7.

The major point of this Act was to ensure that no abuse came to the bankruptcy code in

the form of dishonest debtors. It has indeed succeeded in making it difficult for debtors to apply

under chapter 7 through the means test and the provision of special circumstances. However, this

situation forces many debtors to stay underground and in hiding since the eventual toll after

filing under Chapter 13 is impossible to resolve. Thus, many of the debtors do not file for

bankruptcy.
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References

Ashcraft, A. B., Dick, A. A., & Morgan, D. P. (2007). The Bankruptcy Abuse Prevention

and Consumer Protection Act: Means Testing or Mean Spirited? Federal Reserve Bank.

New York. Retrieved From

https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr279.pdf

Perez, R. (2013). Not "Special" Enough for Chapter 7: An Analysis of the Special Circumstances

Provision of the Bankruptcy Code. 1 Clev. St. L.Rev. 983. Retrieved From

http://engagedscholarship.csuohio.edu/clevstlrev/vol61/iss4/6