In October of 2005, a major overhaul of the bankruptcy code went into effect. It was called the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), and was the result of the bank lobbies convincing Congress that Americans were filing bankruptcy in bad faith and abusing the system (that's where the Bankruptcy Abuse Prevention part was supposed to come in). However, as was observed in a recent post on The Bankruptcy Law Network, very little abuse has been found.
The mechanism by which bad faith debtors were to be kicked out of chapter 7, or forced into a chapter 13, was through a process called "means testing." This is an artificial cash flow analysis used, ostensibly, to force "upper income" debtors into a chapter 13 repayment plan.
How often did that happen? Well, the US Trustee has provided some information in their annual report from last year:
“In FY (fiscal year) 2011, approximately 13 percent of chapter 7 debtors had income above their respective states’ medians. Of the cases filed by debtors with income above the state median, 7 percent were presumed abusive under the means test. However, after considering a debtor’s special circumstances, the Program exercised its statutory discretion to decline to seek dismissal in about 63 percent of the presumed abusive cases in which the debtor did not voluntarily convert or dismiss the case.”
How does that boil down? Well, according to the U.S. Trustee's Office, out of 1,001,813 non-business bankruptcies filed in FY 2011, 130,236 “flunked” the test. Of those, about 9,117 were presumed abusive. And, of those, the government went forward in 3,373 cases. In essence, 0.3% of all chapter 7 cases filed in that fiscal year were pursued as being in bad faith!
Wow! I don't know how Congress can say that this new law has cracked down on bankruptcy abuse when the U.S. Trustee's office itself found that far less than 1% of the filings were in bad faith.
Despite all of the extra hoops that you have to jump through since 2005, including means testing, it is still possible to file chapter 7, and a lot of my clients have, successfully.
If you live in Southern New Jersey and are considering bankruptcy, please feel free to call me at 856-432-4113 or contact me through this site to schedule an appointment to come in and discuss your case. You can also download my free book, Top Questions People Ask About Filing Bankruptcy in New Jersey for more information.