the Bankruptcy Abuse Prevention & Consumer Protection Act of 2005 (bapcpa) Part I

The Bankruptcy Abuse Prevention & Consumer Protection Act Of 2005Part I–Rationales

[See related articles on this blog: “The Bankruptcy Abuse Prevention & Consumer Protection Act (BAPCPA),

‘Part II, Changes in Bankruptcy Law’, and “Part III, The Means Test in Bankruptcy”]

The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) was a “bankruptcy reform” measure passed by Congress during the fifth year of the Bush (#43) Presidency.

According to a report by the U.S. House of Representatives’ Judiciary Committee (Report 109-031), the BAPCPA “represented the most comprehensive set of bankruptcy reforms in more than twenty-five years.”

Rationale for the BAPCPA:

The law, passed by Congress and signed into law by President George W. Bush in April 2005, went into effect 180-days after it was enacted. At the time, various reasons (some of which are outlined in the report of the House Judiciary Committee) were given for the “need” for comprehensive bankruptcy reform.

Amongst the cited reasons were the following:

  • Increase in Bankruptcy Filings: In 1998, bankruptcy filings exceeded 1 million for the first time in history; in 2004, more than 1.6 million bankruptcy cases were filed. Proponents of “reform” said that “…bankruptcy relief is too-readily available, … sometimes being used as a method of ‘first resort’ rather than one of ‘last resort’…”.

Opponents said that abuse in the system was not widespread and pointed out that “…most bankruptcy filings result from causes beyond the control of debtors (i.e. family illness, job loss or disruption, or divorce).” Passage of the BAPCPA was considered a “win” by its proponents.

  • Debtor Losses Unfair to “Responsible” People: It was argued that there were significant financial and monetary losses associated with consumer bankruptcies. In testimony on the BAPCPA in the Senate, one witness said: “Like all other business expenses, when creditors are unable to collect debts because of bankruptcy, some of those losses are inevitably passed on to responsible Americans who live up to their financial obligations. Every phone bill, electric bill, mortgage… (etc.) contains an implicit ‘bankruptcy tax’ that the rest of us pay to subsidize those who do not pay their bills”.

According to some analysts, an increase in bankruptcy filings early in the 21st century had serious adverse financial consequences for the economy as a whole.

In 1997, it was estimated that more than $44 billion of debt was discharged by bankruptcy filers (when amortized on an annual basis, the annual loss was $110 million per day – or – an annual ‘bankruptcy tax” of $400 on every U.S. household). By 2002, the annual losses to bankruptcy for credit card debt (proprietary and general purpose) was $18.9 billion. And, in 2002, the Credit Union National Association (CUNA) reported over $3 billion in bankruptcy-related losses between 1998 and 2001. Again, proponents of “reform” claimed a “win” in the passage of the BAPCPA.

  • Potential for Bankruptcy Abuse: Again, proponents of “reform” argued that the existing bankruptcy system had “loopholes and incentives” that allowed for “opportunistic bankruptcy filings that led to abuse of the system”. Such opportunistic abuse allegedly included debtor misconduct and abuse, misconduct by attorneys and other professionals, problems associated with bankruptcy petition preparers, and instances where a bankruptcy debtor’s discharge should be challenged.
  • Debtors’ Ability to Repay Debt: According to several studies cited in Judiciary Committee testimony, a significant number of bankruptcy filers had the ability to repay at least a portion of the debt they were attempting to discharge in bankruptcy. Under then-existing bankruptcy law, there was no clear provision that would require a debtor to repay any portion of the debt included in a Chapter 7 petition. A spokesperson for the National Association of Bankruptcy Trustees testified that “…while there is universal agreement among the courts that an individual debtor’s ability to repay his or her debts from future earnings is, at the very least, a factor in determining whether substantial abuse would occur in a Chapter 7 case, there are differences among the courts as to the extent to which they rely on a debtor’s ability to repay”.

Politics, of course, played a major role in the adoption of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. George W. Bush had just been re-elected to a second term when the legislation was introduced. Bush, like his Father and other Republican presidents before him, was a pro-business chief executive. The Republican party – as a whole – held similar views vis-à-vis business, corporations, and the protection of their financial and strategic interests. So, the passage of the BAPCPA was, for them, a “win” in both the political and business senses.

Who Were the Proponents of the BAPCPA?:

According to a Nolo Press website,, prior to the passage of the BAPCPA news reports pointed out that the credit card industry was deeply involved in both writing the law and lobbying for its passage. The actions of that one industry, amongst others, influenced the debate in Congress. Analysts noted, at the time, that because credit card debt was a type of debt commonly discharged (100% in many case) in Chapter 7 bankruptcy, credit card issuers had a strong incentive to make it more difficult to file for bankruptcy and receive what amounted to a “blanket discharge” of debts – in particular, a blanket discharge of credit card-debt.

In the United States Senate, the vote for passage was 74 for, 25 against, and one non-vote (a Democrat). It is notable – but not surprising – that fifty-five of the then-Republican majority all voted for passage. The GOP senators in favor of the BAPCPA were joined by eighteen Democrats. Only twenty-five senators – all Democrats or Independents who caucused with the minority party – voted in opposition. (Source:

Amongst the cadre of proponents for the 2005 bankruptcy “reform” legislation was the entire G.O.P. membership of the United States Senate, and, by logical extension the entire apparatus of the Republican Party at all levels at the time. Such proponents of “reform” are all members of a political party with a decided and determined bias in favor of big business and corporations. And by extension, a bias against consumers and debtors who are not as well-equipped to withstand the ups-and-downs of changing financial and consumer markets.

Another group of BAPCPA proponents for bankruptcy reform in 2005 were the lenders who financed and serviced student loans. Today, outstanding student loan debt tops the $1.2 Trillion-dollar mark – that figure accounts for the second-highest level of consumer debt in the United States. Student loan debt is exceeded only by the debt owed on mortgages.

Likewise, the funders and holders of home mortgages were solidly behind the passage of bankruptcy “reform” for the same reasons as other proponents at the time. Lenders, across the boards cringe at the thought of advancing money to consumers only to face the possibility of having such debt, or larges portions of it, wiped out via the bankruptcy courts. Mortgage lenders were a little better off than other lenders – with a mortgage, the note holder has the “security” of the real property to back the debt and, when push-comes-to shove, they have the avenue of foreclosure to recapture the secured asset to cover some of their potential losses.

Credit card lenders, the holders of student loan notes, and others do not have that advantage afforded to mortgage lenders (automobile loans are more in league with mortgagors in that a vehicle serves as the collateral for the loan and can be repossessed much like a foreclosure on a home loan). Credit card debtors, as well as student loan debtors lack readily available and securable collateral with which their debt holders can “foreclose” or make a claim.

Opponents of the BAPCPA:

One class of opponents of the BAPCPA includes students in the United States who have graduated with massive amounts of debt in both the public and private sector student loan lending industry. As noted above, student loan debt currently stands a $1.2 Trillion-dollars (a figure that is climbing year-after-year with no real end in sight to its exponential growth).

The Bankruptcy Reform Act of 1978 dealt only with government-funded student loans; it was the first legislative act that prohibited the discharge of student loan debt (with certain “hardship exceptions”) in a Chapter 7 bankruptcy proceeding. A principal proponent of the 1978 legislation tried to justify non-discharge of student loan debt by saying, “Without this amendment, we are discriminating against future students, because there will be no funds available for them to get an education”. Another Congressman at the time, Representative John Erlenborn, (R) Illinois, was even more blunt and specious in his support of “reform” and criticizing student debtors:

Not having assets to pledge, (student debtors) are pledging future earning

power. Havingpledged that future earning power, if, shortly after graduation

and beforehaving an opportunity to get assets to repay the debt, they seek

todischarge that obligation, I say that is tantamount to fraud…

No matter what those proponents had to say, the 1978 bankruptcy reform passed largely along party lines, with the G.O.P. again siding with lenders in overwhelming numbers. The Democrats, true to form, were largely in opposition to this type of “reform”.

So, in 1978, government-backed student loan debt was locked out of Chapter 7 protections unless a student debtor could show an “undue hardship”. “Undue hardship” has proven, over the years, to be an impossible standard to meet “as interpreted by courts across the country”.

The BAPCPA “reforms” of 2005 closed the circle on student loan debt by adding private-sector student loans to the class of debt that cannot be discharged in Chapter 7 proceedings.

According to a December 2017 article on the website (“Make Student Loan Debt Dischargeable in Bankruptcy… Again”), there are several arguments that auger in favor on nondischargeability, including:

  • Preservation of governmental aid to students
  • Fraud prevention – based upon the premise that the degree a student receives is an “asset” that must be paid for – ergo, their repayment obligations shouldn’t be wiped away in bankruptcy
  • Lenders – governmental and private sector alike – should not be responsible for the “social responsibility” of educational funding (without substantial protections such as bankruptcy)

Studies done in 1978, and since, have found substantial differences between 1978 government-backed student loans and the present-day private sector loans. Today’s private lender student loans carry high and variable interest rates along with zero payment deferment options. Additionally, tuition at state-level colleges and universities in 1978 was a lot lower (i.e. more affordable) than tuition today. In 1978, average tuition at the University of California, Berkeley, was $700 annually – today, that figure is nearly $14,000 per annum according to the U.C. system (tuition and fees for out-of-state students stands at about $42,000 per year).

That’s not all – recent studies have shown that college tuition is rising at twice the rate of inflation, pushed largely by a seemingly endless supply of money (in the form of non-dischargeable loans) from the government and private lenders.

Consider the following recent study conducted by the National Association of Consumer Bankruptcy Attorneys (“NACBA”) that highlighted the following statistics regarding student loan debt:

  • Student loan debtors in the United States now owe more on college-related debt than is owed on consumer credit cards
  • College seniors who graduated in 2010 with student loans individually owed, on average, $25,250.00 (up 5% from 2009, and growing annually)
  • In the 35 – 49 age group, student loan debt has increased by a staggering 47%
  • Loans to parents for the college education of their children have jumped 75% since the 2005 – 2006 academic year
  • In 2010, an estimated 17% of parents took on student loan debt on behalf of their children – in 1992, that percentage stood at 5% (the study found that the average loan debt of parents is $34,000 which rises to $50,000 + over the standard 10-year repayment period)

Given the above-quoted figures and statistics, it’s no wonder that students and those who have graduated with a staggering amount of educational loan debt strongly opposed and continue to oppose bankruptcy “reform” that locks them (and their debt) out of the bankruptcy system.


For those who believe in “less government” and capitalism as the “end all/be all” of how the economy should work (and how it works in reality) in the United States, the bankruptcy reforms discussed in this article make a lot of sense. While the proponents speak of “fraud” and “fairness” (to the capitalist lenders, it should be noted), there are counter-arguments that have been expressed by the opposition.

In the higher-education sector, for instance, one commentator has noted that, “There are private colleges whose sole reason for existence is to suck up as much student aid as possible. The (now-defunct) University of Phoenix received eighty-eight percent (88%) of its revenue from federal programs (mostly student loans) …” in the year before its timely demise!

Another factor to consider is the issue of the “value” of a degree these days from institutions like the University of Phoenix, Trump University, and other questionable “institutions of higher learning”. If such degrees (“assets”?) are of highly questionable value, having been “purchased” at an exorbitant price, why shouldn’t those student loan debtors at least have a chance of stating their case before a Chapter 7 Bankruptcy Judge?

Those students who obtained a degree or degrees with real value will, likely, not be in line at a bankruptcy court and, over the course of a career, such debtors would stand a reasonable chance of paying of their student debt.

Make sense?

[NOTE: Changes to the bankruptcy reform act of 2005 vis-à-vis student loan debt is discussed in further detail in “Part II – Changes in the Bankruptcy Law” on this blog]

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