Bankruptcy Abuse Prevention and Consumer Protection Act

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 received a lot of objection from bankruptcy lawyers, judges and consumer advocate groups. Many felt that this act, which became effective on October 17, 2005, would hurt consumers who got in over their head with credit card debt and not give them the option eliminating the debt and starting fresh.

The purpose of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, with regard to bankruptcy, was to eliminate people who took advantage of the bankruptcy laws for their own gain. For most people, filing bankruptcy is one of the most traumatic experiences they have to endure. Most people who file are ashamed and embarrassed at having failed to pay their debts. Most people are raised to pay off their debts in a timely manner and most Americans are very credit conscious individuals. We worry about our credit scores and borrowing power to the point of mania.

Some individuals, however, do not care about their credit scores at all. Nor do they care about paying back money that they have borrowed. There is no debtors prison in the United States, and credit card companies routinely hand out credit cards to just about everyone. Although you can only file Chapter 7 bankruptcy every 8 years, there were many individuals who were doing just that: Filing Chapter 7 bankruptcy every 8 years. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 is targeted at these individuals who made filing bankruptcy a way of life. These abusers of the bankruptcy laws would routinely run up credit every seven years and simply file bankruptcy on the eight year. Every year. This cost credit card companies and banks millions of dollars that they promptly passed on to customers by way of higher interest rates and fees.

With the Bankruptcy Abuse Prevention and Consumer Protection Act, individuals who are able to pay off part of their debt must do so under Chapter 7. Individuals who make more than the median income for their state, must pay back their debt. Individuals who do not make a lot of money are still able to discharge their debt.

Because so many people abused the generous provisions of the old bankruptcy laws, new laws were required to keep “serial bankrupts” from filing Chapter 7 every eight years. For this reason, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was drafted and enacted into law.