Bankruptcy and the BAPCPA

One of the fears of consumers is to file for bankruptcy. For different people, this fear stems from different views. Some people view bankruptcy as a humiliating thing. Others see it as an arduous and difficult process. Yet others view bankruptcy as not effective enough to deal with their financial debts. For these reasons, many are reluctant to file for bankruptcy. Sadly, a lot of the misconceptions about filing for bankruptcy stems from a pivotal piece of legislation called the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA).

The BAPCPA was enacted because credit card companies wanted legislation to protect them from mounting credit card defaulters who resorted to bankruptcy applications to discharge their credit card debts. Thus the BAPCPA has made it harder for people to get approved under Chapter 7 of the bankruptcy code, thereby compelling people to apply under Chapter 13 instead. One of the major provisions of the BAPCPA is the means test, which is the method of calculating a person’s income compared to a predetermined average income for a family of your size in your state.

The effect of the BAPCPA is that many people have the misconception that the process of applying for bankruptcy is very difficult because the BAPCPA imposes stringent restrictions. But as the name of the Act suggests, it is enacted to prevent abuse of the bankruptcy code, not to deter people from applying for bankruptcy.

The BAPCPA itself has not had much effect on reducing the overall rate of bankruptcy applications since its enactment in 2005. For instance, from June 30th 2007 to June 30th 2008 the total number of filings for bankruptcy increased by 28.4% and the number of Chapter 7 (straight bankruptcy or liquidation) filings increased by 36.7%. Why has the BAPCPA not been effective in lowering the number of bankruptcy applications? This is because its formulation is based on wrong presumptions.

The BAPCPA, enacted to protect credit card companies, assumes that consumers like you would file for bankruptcy as an escape hatch from having to repay high credit card bills. In other words, they assume that you wantonly apply for credit cards and are quick to hide behind the bankruptcy code when your bills become too high. But nothing could be farther from the truth for the majority of Americans. Most Americans are honest, hardworking people who would never intentionally defraud the credit card companies. However, bad times happen to all of us. And in most cases, that is the sole reason why you are now under a tremendous load of debt.

But the bankruptcy code exists to provide you a way out. Forget about the BAPCPA. That is for the minority of Americans who truly have ill intent in defrauding the credit card companies. But not you. You are merely an innocent victim of your circumstances. Therefore, you should not exclude the option of bankruptcy to solve your financial woes.

Call my office at (813) 200 4133 today for a non-obligatory consultation.