Seven years ago, Congress made some significant changes to the Bankruptcy Code in a law called the Bankruptcy Abuse Prevention and Consumer Protection Act, or BAPCPA.
This law dramatically altered the landscape of bankruptcy by, among other things, imposing a means test to prevent some high-income families from filing for relief. It forced many people seeking protection from their creditors into a repayment plan under Chapter 13 by “disqualifying” them for Chapter 7 protection.
In the months after BAPCPA passed, but before it came into effect, there was an immense surge of filings as people tried to get their cases opened before the new standards made it more difficult to do so. There were so many new filings that the Court Clerk had to open extra space for the overflow traffic of debtors filing for relief.
Of course, nobody knew at the time that we were in for the worst recession since the great depression of the 1930s just a few short years later. It turns out a housing bubble and financial shenanigans were the real cause of economic trouble, not abusive bankruptcy filings.
However, for the folks who filed for bankruptcy back in 2005, there was a new dilemma. Just like other people, they often got hit by job loss, income reduction, foreclosure, and the other trappings of the economic downturn. Unfortunately, they were not always able to discharge their debts in bankruptcy, since the code only permits one chapter 7 discharge every eight years.
Over the coming twelve months, those original filers will once again be eligible for relief. I expect to see a large up-tick in filings as those who patiently waited for the time period to run once again seek relief from their debts.