After seven failed attempts and massive lobbying largely by banks and credit card companies, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was signed into law by President Bush on April 20th, 2005. The legislation represents the largest overhaul of the Bankruptcy Code since its enactment in 1978. The intent of Congress was to improve bankruptcy law and practice with a dominant theme of restoring personal responsibility and integrity in the bankruptcy system.
The BAPCPA is a comprehensive set of bankruptcy reforms that addresses several key factors, including escalating bankruptcy filings, significant creditor losses associated with bankruptcy, loopholes and incentives in the current system that allow for opportunistic personal filings and abuse and the lack of financial accountability. The Act also creates new responsibilities for those charged with administering consumer bankruptcy and those who counsel debtors to achieve bankruptcy relief.
One of the most important provisions in the BAPCPA is the amendment to Bankruptcy Code Section 707(b), which provides for "means testing." Prior to enactment of the BAPCPA, a case under chapter 7 could only be dismissed for "substantial abuse." "Means testing" is intended to prevent abuse by debtors, through the use of a much more objective standard. According to the CCH Bankruptcy Reform Act Briefing, the "means test" is designed to "force those debtors who have the ability to pay some of their debts into Chapter 13 as opposed to liquidating under Chapter 7 and wiping the slate clean." Under the test, a debtor would remain eligible for Chapter 7 if his or her monthly net income is less than $100 ($6,000 over five years). Howev ...