Understanding the Bankruptcy Abuse Prevention and Consumer Protection Act and Its Effect on Family Law

The Bankruptcy Abuse Prevention and Consumer Protection Act, or BAPCPA, was an important piece of legislation that took effect in 2005 and is the foundation of bankruptcy law today. While BAPCPA was originally enacted in 2005, the specifics of the law are still confusing for many.

In the weeks leading up to BAPCPA, courts became suddenly overcrowded with Chapter 7 bankruptcy filings. This was due to a fear and misunderstanding of one of the law’s biggest changes: a "means test" that would be applied to all Chapter 7 and 13 filings. The means test was essentially an overview of the debtor's income for the 6 months prior to filing. The test was meant to weed out "can pay" debtors and prevent abuse of Chapter 7 bankruptcy filing. Many debtors had little understanding of the test's specifics and feared they wouldn't qualify, so they rushed to file before the bill passed and bankruptcy alternatives were their only remaining choice.

The fear was largely unfounded: the means test automatically gave debtors an early passing grade to filers with an income below the median of their home state. This is generally 75–85% of filers. Filers who didn't pass were those with a monthly disposable income above a very low maximum. It tightened the net for true abusers, without making it harder for debtors genuinely in need of bankruptcy protection.

Just like the means test, there are still many conditions of the bill most consumers don't understand, particularly the way in which it affects family law cases. For example, will the "automatic stay" from the bankruptcy filing halt family law proceedings? While bankruptcy proceedings do indeed stop most types of cases, the automatic stay allows for exceptions so that it doesn’t halt important family law proceedings over things such as child custody or visitation issues.

Filers can also ask the bankruptcy court for a "comfort order" to an automatic stay. The comfort order simply allows for other, unspecified exceptions to the automatic stay for certain proceedings that the filer doesn’t want halted. This exception is important if a filer is issuing a divorce decree at the same time as a bankruptcy. Divorce proceedings may begin on issues such as support before receiving this order. However, the division of property and debts may not proceed without the special exemption from the automatic stay, provided by the comfort order.

This is due to the fact that most marital and divorce laws are a state issue, while bankruptcy is an aspect of federal law. So the federal bankruptcy laws try not to interfere with a state’s family law proceedings. The division of property and assets between spouses, however, greatly affects the bankruptcy proceedings. This becomes one of the few areas federal bankruptcy laws would need to overrule state family law. But the comfort order exists so that all other unrelated family court proceedings may continue, uninterrupted by federal bankruptcy proceedings.