What Is the Bankruptcy Abuse Prevention and Consumer Protection Act?

The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) was enacted in 2005 to reform the U.S. bankruptcy system, making it harder for individuals to file for Chapter 7 bankruptcy and encouraging repayment under Chapter 13. The law sought to curb perceived abuses by tightening eligibility requirements and imposing additional obligations on debtors.

To comply with BAPCPA, filers must meet stricter financial criteria, complete credit counseling, and follow new legal restrictions. These changes affect how consumers approach bankruptcy and their ability to discharge debts.

Means Test Criteria

BAPCPA introduced a means test to determine whether an individual qualifies for Chapter 7 bankruptcy. This test evaluates a filer’s income and expenses to assess if they have enough disposable income to repay creditors under Chapter 13. The debtor’s average monthly income over the past six months is compared to the median income for a household of the same size in their state. If it falls below the median, Chapter 7 is an option.

For those exceeding the median, a detailed calculation follows. Allowable expenses—such as housing, food, transportation, and healthcare—are deducted based on IRS standards. Certain actual expenses, including payroll deductions and child support, may also be subtracted. The remaining disposable income determines eligibility. If it surpasses a set threshold, Chapter 7 is not an option, and the individual must pursue repayment under Chapter 13.

Mandatory Counseling Sessions

Before filing for bankruptcy, individuals must complete a credit counseling session from an approved nonprofit agency. This session reviews the filer’s financial situation, including income, expenses, debts, and assets. A counselor evaluates whether a repayment plan outside of bankruptcy is feasible and offers guidance on budgeting and debt management.

The session must occur within 180 days before filing, and debtors receive a certificate upon completion, which must be submitted to the bankruptcy court. Without this certificate, the case may be dismissed. These sessions can be conducted in person, over the phone, or online. Fees vary, but low-income individuals may qualify for a waiver.

Counselors may suggest a debt management plan as an alternative. While participation is not mandatory, courts require proof that this option was considered. If a debtor proceeds with bankruptcy, completing counseling demonstrates that all reasonable efforts to avoid filing were made.

Debtor Education Requirements

After filing for bankruptcy but before debts can be discharged, individuals must complete a debtor education course covering financial management topics such as budgeting and credit use. Unlike the initial counseling session, which focuses on alternatives to bankruptcy, this course emphasizes long-term financial stability.

The course must be taken through a provider approved by the U.S. Trustee Program or, in Alabama and North Carolina, by the bankruptcy administrator. It is available online, over the phone, or in person. Fees typically range from $10 to $50, with waivers available for those who qualify. Upon completion, participants receive a certificate that must be filed with the court. Failure to submit this documentation can result in the case being closed without a discharge, leaving debts legally enforceable.

Restrictions on the Automatic Stay

The automatic stay halts most creditor collection efforts once a bankruptcy case is filed. BAPCPA narrowed this protection to prevent serial filers from abusing the system. If an individual had a bankruptcy case dismissed within the past year, the automatic stay in a new case lasts only 30 days unless the debtor proves the new filing is made in good faith. If two or more cases were dismissed within the previous year, no automatic stay goes into effect unless granted by the court.

These limitations primarily affect individuals who repeatedly file to delay foreclosures, evictions, or wage garnishments. Courts examine changes in financial circumstances or unforeseen hardships to determine if the new filing is justified. If not, creditors can resume collection efforts almost immediately.

Secured creditors can also request relief from the automatic stay, particularly in mortgage foreclosures or vehicle repossessions where collateral is losing value. If the court grants the motion, the creditor can proceed with recovery efforts despite the bankruptcy filing.

Reaffirmation of Debts

Some debts are not automatically discharged in bankruptcy if the filer chooses to reaffirm them. Reaffirmation is a voluntary agreement between the debtor and a creditor to continue repaying a specific obligation despite the bankruptcy filing. This is common with secured debts such as mortgages and auto loans, where individuals wish to retain property and avoid repossession.

To finalize a reaffirmation agreement, the debtor must file paperwork with the bankruptcy court and, in some cases, attend a hearing. The court evaluates whether the agreement places an undue financial burden on the filer. If the judge determines that the debtor cannot reasonably afford the payments, the reaffirmation may be denied. Once finalized, the debt is excluded from discharge, meaning future missed payments could result in foreclosure or repossession. Unlike other discharged debts, reaffirmed obligations remain on the individual’s credit report and continue to impact financial standing.

Consequences for Noncompliance

Failing to meet BAPCPA’s requirements can lead to legal and financial consequences. Courts may dismiss cases if debtors do not complete mandatory steps such as credit counseling, debtor education, or means testing. A dismissal allows creditors to resume collection efforts, including lawsuits, wage garnishments, and property seizures. In some instances, individuals may be barred from refiling for a set period.

Intentional misrepresentation or fraud carries harsher penalties. Providing false information, concealing assets, or manipulating the means test can result in criminal charges, fines, or imprisonment. The U.S. Trustee Program monitors cases for signs of abuse and can refer fraudulent activity to law enforcement. Additionally, creditors can challenge a discharge if they believe a debtor acted in bad faith, potentially leaving certain debts intact despite the bankruptcy filing.