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Hi, my name is Greg Holbus and I'm a bankruptcy attorney in the Eastern District of Wisconsin.
Welcome to part 3 of my 16 part video blog series concerning the most common questions
I receive from my clients. Remember that if you want additional information, you can access
the resources available on my web-site at www.HolbusLaw.com. And if you're interested
in a free bankruptcy consultation, I hope you'll give my office a call at (920) 490-6160.
As we're starting to wade into the more detailed topics in this video blog series, I'd like
to take a moment to remind you that the information on these video blogs is very general in nature.
Before you act on them, you should consult with an attorney - whether it's me or somebody
else - regarding the specific facts about your case so you can get legal advice tailored
to your particular needs.
That said, today's topic is the Bankruptcy Abuse Prevention and Consumer Protection Act
of 2005 - or as we most commonly pronounce the convoluted acronym: BAPCPA. As many of
my colleagues have noted, it's been around for four years, and we are still to this day
looking for the consumer protection provisions in this law.
All kidding aside, most of you are aware that the bankruptcy laws changed back in 2005 under
the Bush administration. You know this because the media went absolutely nuts over this story,
and they convinced thousands of people that they would never be able to file for bankruptcy
again after the new law passed, prompting many people to file perhaps too early for
their own good, and scaring a number of people out of filing - some people who probably did
need to file for bankruptcy.
In fact, to this day, I still get the occassional person who walks through my door and believe
they cannot file for bankruptcy because of the new law, and I have to assure them that
I don't get paid to keep this chair warm. In fact, the number of filings is slowly returning
to the levels that they were prior to the law change... So there!
BAPCPA had two major goals. One of them was to reduce or eliminate judicial discretion
by further codifying an already very bureaucratic process. Congress wanted to have clear, bright-line
tests that spelled out whether an individual qualified for bankruptcy or not.
Unfortunately, Congress did a very poor job in drafting BAPCPA. There are a number of
provisions in the code that are completely ambiguous, such as the cram-down provision,
and the definition of projected disposable income. And that has lead some very educated
individuals in the judiciary to arrive at completely different interpretations of the
law - and each interpretation perfectly valid in its own right!
BAPCPA's other goal was to reduce abuse in the bankruptcy process by making it harder
to file. They succeeded in making it more of a procedural nuisance, but I don't know
that it did a very good job of disqualifying people from bankruptcy. In fact, I've seen
a number of cases get into Chapter 7 on some very bizarre results on the Means Test, which
probably would have had to been filed in Chapter 13 under the old law.
But far be it for me to question the infinite wisdom of the United States Congress. So,
moving on...
BAPCPA created a lot of changes in the bankruptcy code, but I think we can narrow down the major
practical changes that you, as a bankruptcy debtor, would notice - down to three. (By
that, I mean, if you filed bankruptcy under the old law, and you need to file again now,
here are the major changes you're going to notice:)
First of all, we now have requirements that you take two counseling courses. The first
one is a credit counseling course that you have to take before you file the case. There
are some minor exceptions and waivers to that, but in 99% of cases, you have to take this
course before you file bankruptcy.
The second one is a financial management (or debtor education) course which you have take
after you file for bankruptcy in order to get your discharge.
A lot of providers offer this course to be done either online or over the phone, and
most attorneys can give you information on that. Some courses are held in-person. In
fact, the local Chapter 13 Trustee here offers a free course for the financial management
- the second course - for the people who are assigned to him as trustee. It's a very
good service, and I generally recommend my clients do it - particularly because it's
free.
You do want to be careful, though, if your attorney does not have a specific company
lined up for you - don't go to just anybody who claims they offer counseling services.
It has to be approved by the United States Trustee's department. You can get that information
on the U.S. Trustee's web-site, and to find that, you're gonna have to go through the
Department of Justice web-site.
Second major change due to BAPCPA is there is a substantial number of additional documents
that we have to provide to the bankruptcy trustee. Things like - y'know - in the Eastern
District of wisconsin, the standard kit that I send to my trustees is going to have the
deed, mortgage, and tax bill to a house, titles to cars, tax years for the past - excuse me
- tax RETURNS for the past two to four years, pay-stubs for the six months prior to filing,
and in some cases, depending on what all is going on and what's relevant, there might
be additional documents on top of that.
The third thing - and this is the big one - is the Means Test, which, if you're looking
up the forms on the bankruptcy court's web-site, this is Form B22A in Chapter 7 and B22C in
Chapter 13.
Basically, what the Means Test does - I break it down into two portions. One part is to
determine whether your gross annual income is above or below the median income level
for a household of your size in your state. So, if you're in Wisconsin and you have a
family of two - the number is, I think $55,000 off the top of my head. So your gross annual
income should be below that if you hope to qualify for Chapter 7.
If you annual income is above the median income level, then you go on to the second portion
of the Means Test, and it is still possible to qualify for Chapter 7 by beating the Means
Test, but more often that not, if you're above median, you're probably gonna be in Chapter
13. And the second portion of the Means Test basically determines how much of your unsecured
creditors you can afford to pay. It's an incredibly long form, very technical, it almost - again
- looks like a complicated tax return.
It primarily analyzes your debt to income ratio, among all other things. You list all
of your income for the past six months, and it gets extrapolated out for a year. And then,
we take out certain deductions - some of them are your acual expenses, and others are IRS
standards, or allowances, for cost of living. It computes a number at the end and tells
us how much of your unsecured creditors, if any, you can afford to pay.
I'm going to talk about the Means Test in a lot more detail in one of my future blogs,
so I don't want to get too deep into it. I just wanted to give you a quick, cursory view
as to what it is all about, and the fact that it is probably THE biggest change to the bankruptcy
laws that were passed in 2005.