Impact of the nearly decade-old BAPCPA on Chapter 7

Next year, the Bankruptcy Abuse Prevention and Consumer Protection Act will turn ten years old. Over the past decade, the reforms brought forth by the act have changed the way many individuals, both nationwide and in Mississippi, file for Chapter 7 bankruptcy. Those intrigued by the benefits of Chapter 7, such as the elimination of certain debts, may wish to know more about the reform's key effect regarding eligibility.

In the spring of 2005, the law, often known as BAPCPA, was signed by then-President Bush. While it ushered in several changes, one of the primary effects was stricter eligibility requirements regarding Chapter 7 bankruptcy. Since the law's passage, those wishing to file for Chapter 7 must now pass what is called a "means test." Under the conditions of the test, a person whose monthly income is less than their state's median income can file for Chapter 7.

Of course, this doesn't mean that Chapter 7 is appropriate just because a person can pass that part of the test. Chapter 13 may be a more appropriate form of bankruptcy for some; an experienced bankruptcy attorney can review the pros and cons of each type with a debtor.

If an individual's currently monthly income is higher than their state's median income, and that person is able to contribute at least $100 each month towards their debt, they are likely to be ineligible for Chapter 7. Of course, many debtors may believe they are unable to pay $100 per month, but the formula is based on a combination of monthly earnings, overall debt and expenses. Since a person's income can change from year to year and sometimes even from month to month, discussing one's personal debt with a bankruptcy lawyer may be the best point from which to start learning more about Chapter 7 for individuals.

Source: Findlaw, "2005 Bankruptcy law changes FAQ," accessed Nov. 23, 2014

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