Bankruptcy Abuse Prevention and Consumer Protection Act of 2005

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The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (S.256), as passed, was introduced in the 109th Congress (2005-2006). The act made sweeping changes to American bankruptcy laws, affecting both consumer and business bankruptcies. Many of the bill's provisions were explicitly designed by the bill's Congressional sponsors to make it "more difficult for people to file for bankruptcy" in order to curb abuse.

The act was passed by the 109th United States Congress and signed into law by President George W. Bush on April 20, 2005, applying to cases commenced on or after October 17, 2005.

History
The bill was first introduced in the 105th Congress. However, the bill did not pass until the 106th Congress as the Bankruptcy Reform Act of 1999 (H.R.833). The bill was introduced by Rep. George Gekas (R-Pa.) on February 24, 1999, subsequently referred to the House Committee on the Judiciary, then passed with a vote of 313-108 on May 5, 1999.

The Senate’s corresponding bill (S.625) was introduced by Sen. Chuck Grassley (R-Iowa) on March 16, 1999. However, the House’s version was agreed to in lieu of S.625 on February 2, 2000, with a vote of 83-14.

President Bill Clinton, however, pocket-vetoed the bill. In the years since 2000, the bill was introduced in each Congress. While it passed both chambers in 2002 as H.R.333, it was repeatedly shelved due to irreconcilable conference and threats of a filibuster from its opponents and because of disagreements over various amendments, including one backed by Senate Democrats that would have made it harder for anti-abortion groups to discharge court fines related to felony convictions by filing for bankruptcy.

Senate
S.256 was introduced in the Senate by Sen. Chuck Grassley (R-Iowa) on February 1, 2005. The bill was subsequently referred to the Senate Committee on the Judiciary, of which Grassley was a member, and reported on February 17, 2005. On March 10, 2005, the Senate passed the bill with a vote of 74-25.

House
Rep. Jim Sensenbrenner (R-Wis.) sponsored the bill in the house (as H.R.685), which was referred to the House on February 9, 2005. The House, with a vote of 302-126, passed the act on April 14, 2005.

President signs S.256
On April 20, 2005, President George W. Bush, who had supported the bill at its inception, signed it and it became Public Law No: 109-008.

Criticism
The 2005 bankruptcy bill was opposed by a wide variety of groups, including consumer advocates, legal scholars, retired bankruptcy judges, and the editorial pages of many national and regional newspapers. While criticisms of the bill were wide ranging, the central objections of its opponents focused on the bill's sponsors' contention that bankruptcy fraud was widespread, the strict means test that would force more debtors to file under Chapter 13 (under which no debts are forgiven) as opposed to Chapter 7 (under which some debts are forgiven), the additional penalties and responsibilities the bill placed on debtors, and the bill's many provisions favorable to credit card companies. Opponents of the bill regularly pointed out that the credit card industry spent more than $100 million lobbying for the bill over the course of eight years.

One of the primary stated purposes of the bankruptcy bill was to cut down on abusive or fraudulent uses of the bankruptcy system. As Congressman Jim Sensenbrenner (R-Wis.), one of the bill's key supporters in the House, argued, "This bill will help restore responsibility and integrity to the bankruptcy system by cracking down on fraudulent, abusive, and opportunistic bankruptcy claims." Opponents of the bill argued that claims of bankruptcy abuse and fraud were wildly overblown, and that the vast majority of bankruptcies were related to medical expenses and job losses. Their arguments were supported by an in-depth study by Harvard University medical and legal scholars, which found that more than half of bankruptcies were attributable to unpaid medical bills.

Perhaps the most controversial provisions of the bill was the strict means test it established to determine whether debtors could file under Chapter 7 of the bankruptcy code. This decision was previously made by a bankruptcy court judge, who would evaluate the particular circumstances that led to a bankruptcy. Critics of the means test, which is triggered if a debtor makes more than their state's median income, argued that it ignored the many causes of individual bankruptcies, including job loss, family illnesses, and predatory lending, and would force debtors seeking to challenge the test into costly litigation, driving them even further into debt.

Besides the stricter means test, opponents of the bill also objected to the many other obstacles the bill creates for individuals seeking bankruptcy protection. These included more detailed reporting requirements, higher fees, mandated credit counseling, and the additional liability placed on bankruptcy attorneys, which critics argued would drive up attorneys fees and decrease the number of lawyers willing to help consumers file. These criticisms have been borne out in the months following the new law, as lawyers have reported that the bankruptcy process has become significantly more arduous, forcing them to charge higher fees and take fewer clients. The many provisions beneficial to credit card companies were also a major target of the bill's opponents. In particular, critics objected to the extension to eight years from six the time before which debtors could liquidate their debts through bankruptcy, and requirements that those who do file for multiple bankruptcies to pay previous credit card debt that would have been forgiven under the old law. The bill's opponents were especially critical of provisions that prioritize the repayment of credit card debt over unpaid child support, forcing spouses owed alimony to fight with credit card companies and other lenders for their unpaid support. More broadly the bill's critics argued that the legislation did nothing to curtail the predatory practices of credit card companies, such as exorbitant interest rates, rising and often hidden fees, and targeting minors and the recently bankrupt for new cards. The bill's critics pointed out that these practices are themselves significant contributors to the growth of consumer bankruptcies.