The Presumption of Fraud under BAPCPA

Most agree that every effort should be made to curtail abuses of the bankruptcy system. Some, however, argue that the last major change to the Bankruptcy Code went too far.  The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) has been widely regarded as one of the greatest successes of the banking industry.  Among the major amendments to the Bankruptcy Code under the BAPCPA were the provisions concerning the presumption of abuse by debtors — provisions widely criticized by public interest groups as further exacerbating the problems of the financially distressed.

Following are highlights of some of the changes under the BAPCPA:

  • Limitations to Chapter 7 filings. The consumer credit industry lobbied for a long time for laws that would restrict the number of people eligible for filing under Chapter 7 (liquidation). It succeeded with Section 707(b), which direct the courts to dismiss Chapter 7 filers or re-direct them to Chapter 13 if it determines — under a more stringent means test than before — that the debtor is able to make payments. There is a presumption of abuse for those who fail the means test.
  • Purchase of Luxury Goods. It is understandable that certain debts should not be dischargeable in bankruptcy, particularly purchases for so-called luxury items.  Under the previous law, a luxury item was considered any purchase of $1,225 or more. This was changed under Section 523(a)(2)(C)(I) to a mere $600 under the BAPCPA.  Furthermore, the time period for the restriction on these purchases was increased to 90 days before filing. What this means is that if you purchase even a single item worth $600 or more within three months of filing for bankruptcy, that purchase will be presumed to be fraudulent and potentially non-dischargeableif the creditor objects.
  • Cash Advances. Before 2005, you could make a cash advance on your credit card in an amount less than $1,225 more than 60 days before filing, and have the amount discharged in bankruptcy.  Under Section 523(a)(2)(C)(II), that amount is now reduced to $875, and the time period has been increased to 90 days. We find that most of the people we meet are not trying to do anything fraudulent or abusive.  However, people can inadvertently fall into traps where the law presumes fraud.

Our attorneys are recognized experts in this area and can assist you with all aspects of your bankruptcy, including how to avoid committing an inadvertent act of fraud under the current law. Call us today for a consultation.