Changes to Law Made Bankruptcy More Expensive

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By Jay Horowitz

Dec. 4 — The 2005 bankruptcy law amendments created roadblocks for consumer debtors and made bankruptcy filings more expensive, bankruptcy judges and lawyers said Dec. 4.

The comments came during a program about the tenth anniversary of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA).

Regarding the concerns consumer bankruptcy lawyers had in 2005, “What we thought would happen, really did happen,” Carol Ann Colliersmith of Colliersmith & Associates PC, Marietta, Ga., said.

Credit Counseling Requirement

The credit counseling requirement added by BAPCPA doesn't seem like a big help, and imposes additional expenses and burdens on debtors, said Colliersmith. Bankruptcy Code Section 109 was amended by BAPCPA to require that individual debtors must, with certain limited exceptions, undergo credit counseling before filing a bankruptcy petition.

The credit counseling requirement “provides a little bit of a roadblock” and increased expense for debtors, Judge Eugene R. Wedoff of the U.S. Bankruptcy Court for the Northern District of Illinois said.

Nina M. Parker of Parker & Associates, Winchester, Mass., pointed out that debtors should not pay for credit counseling by credit card, since they are advised not to incur more debt prior to a bankruptcy filing. “As a practical matter,” she said, “it is a roadblock for debtors.”

Means Test Criticized

Judge Wedoff said the means test imposed by BAPCPA “is unlikely to provide a good measure of a debtor's actual ability to pay debts.” He said it is a problem that charitable donations and secured debt payments are not subtracted from current monthly income as reasonable expenses. Therefore, the means test doesn't reflect “what's actually happened.”

The means test is found in Bankruptcy Code Section 707, and provides that an individual's Chapter 7 liquidation case may be either dismissed or converted to a reorganization under Chapter 11 or 13 as an abuse of Chapter 7 if the debtor is shown to be able to pay some of his or her debts, according to Bloomberg Law: Bankruptcy Treatise.

Whether the debtor has the means to pay is determined by calculating the debtor's “current monthly income” and deducting from that amount certain living expenses, some actual and some imputed based on Internal Revenue Service collection guidelines. A debtor who passes the means test may still be subject to discretionary dismissal for abuse based upon the totality of the debtor's circumstances or bad faith.

“My bottom line,” Wedoff said, is that the means test and BAPCPA accomplished a goal that may or may not have been intended: to make bankruptcy more expensive. He said with market principles, if something is more expensive, people may buy it less.

The discussion was part of a session entitled “BAPCPA Consumer Issues: 10-Year Anniversary Special” held at the American Bankruptcy Institute's Winter Leadership Conference in Phoenix.

To contact the reporter on this story: Jay Horowitz in Phoenix at

To contact the editor responsible for this story: Tom P. Taylor at

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