What to know about the BAPCPA

Bankruptcy in Louisiana is a legal process that can help consumers remove certain unsecured debts. However, in 2005, Congress added more requirements under the Bankruptcy Abuse Prevention and Consumer Protection Act.

Overview of the BAPCPA

Congress enacted the BAPCPA to prevent abuse of the bankruptcy system by high earners looking to avoid paying debt. Before 2005, almost anyone could file Chapter 7, a type of bankruptcy that removes unsecured debts.

The BAPCPA added the means test, which compares the filer’s gross income to the state median of a similar household. If the filer exceeds this limit, the court deducts allowable expenses, such as rent, from gross income. Consumers who have enough disposable income to pay debts are commonly converted to Chapter 13, a repayment plan.

The BACPA requires the consumer to take nonprofit credit counseling from an agency approved by the U.S. Trustee Program before filing the petition. The consumer must also submit tax returns from the previous year, or they cannot proceed until they file them.

Presumption of abuse

When a consumer files Chapter 7 bankruptcy after they fail the means test, it is with the presumption of abuse. The filer must prove to the court that they have a special circumstance to rebut the presumption of abuse.

While there is no legal definition of special circumstance, the filer must prove that they have no other option. A common special circumstance often involves the filer getting overtime pay, and their income decreases after it stops. Other special circumstances may include medical conditions, active military duty, and increases in medical bills or rent.

A consumer should researcher what bankruptcy they qualify for before filing. However, bankruptcy should typically be used as a last resort to get out of debt because it lowers credit scores for several years.