Punishing Honest Debtors: The Travesty of BAPCPA

Parliament, London (photo by Marilyn Swanson)

By: Donald L Swanson

One of the travesties of our current bankruptcy laws is the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (aka “BAPCPA”).

Here’s why BAPCPA is a travesty:

  • The Bankruptcy Code (enacted in 1978), (i) recognized the existence of honest but unfortunate debtors, and (ii) presumed each individual debtor to be just that, until evidence demonstrates otherwise;
  • But by 2005, Congress had changed its mind and could no longer abide the idea of middle class people filing bankruptcy; so, they decided to make bankruptcy difficult for them by, (i) presuming middle class debtors to be less-than-honest, and (ii) making bankruptcy relief really, really hard for them to achieve;
  • Congress didn’t care that the Bankruptcy Code had worked well for the 25+ years of its existence before BAPCPA’s enactment—Congress wanted punitive action against middle class debtors; and
  • The “Consumer Protection” portion of the BAPCPA name is oxymoronic: there is no “protection” in that law for consumers—it’s all vindictiveness and antipathy.

A Return to Olde Bankruptcy History

What BAPCPA represents is a return to the bankruptcy-is-bad ideas of olde England and olde U.S.A., circa 1800. [Fn. 1]

—English Parliament’s 1800 Act

On April 4, 1800, the “Acts of Parliament of England concerning Bankrupts” passed into law. This law declares that it deals with:

  • “divers and sundry persons” who “craftily obtained into their hands great substance of other men’s goods”;
  • who then “suddenly flee to parts unknown” without “minding to pay or restore to any their creditors”; but
  • “at their own wills and own pleasures consume” what they “obtained by credit of other men”; and
  • they do so at “their own pleasure and delicate living” and “against all reason, equity, and good conscience.”

Obviously, this 1800 Act of Parliament deals, exclusively, with fraudulent acts of unscrupulous people, for whom debtor’s prison is established as a remedy. This Act has nothing, whatsoever, to do with the honest but unfortunate debtor we recognize today.

In fact, to the Parliament of 1800, the very ideas of an “honest” person and of one who commits an “act of bankruptcy” are by definition, mutually exclusive.

—U.S. Congress’s Act of 1800

On that same day (April 4, 1800) the United States Congress also passed a bankruptcy bill into law titled, “an Act to establish an uniform System of Bankruptcy throughout the United States.” [Fn. 2]

This U.S. bankruptcy law (like England’s law of the same day) declares that it is designed to deal with, “any merchant, . . . banker, broker, factor,” who “shall with intent to unlawfully delay or defraud his or her creditors,” do such things as:

  • “depart from the state”;
  • “conceal him or herself”;
  • avoid “being taken or served with process”;
  • “convey” or “conceal” his goods;
  • make “any fraudulent conveyance of his or her lands or chattels”; and
  • etc.

Like the 1800 Act of Parliament quoted above, this 1800 Act of Congress is intended to deal with fraudulent acts of unscrupulous people, for whom debtor’s prison is recognized as a remedy. Additionally, the 1800 Act of Congress has nothing, whatsoever, to do with the honest but unfortunate debtor who might need bankruptcy relief.

—Bankrupts of Olde = Bad Actions Deserving Punishment

If there is any message from the two April 4, 1800, bankruptcy Acts quoted above, it’s this: bankruptcy debtors are, by definition, people who have done bad things—fraudsters and unscrupulous folk who deserve debtor’s prison.

Debtors of Today

Fast forward to today.

Our Bankruptcy Code still deals with the same types of bad-actions targeted by the April 4, 1800, Acts quoted above.  It does so through such provisions as fraudulent transfer avoidance, nondischargeability and bankruptcy crimes.

But this very same Bankruptcy Code also allows and provides for the honest but unfortunate debtor. Such debtors are, by definition, good people and worthy of bankruptcy relief. Their financial misfortunes might arise from heath problems, a lost job, an economic recession, obsolescence of an entrepreneur’s product, loss by theft or embezzlement, a national tragedy, etc. And their relief under the Bankruptcy Code is in the form of exemptions, discharge, reorganization opportunities, etc.

This blending together of provisions, in today’s Bankruptcy Code, for both bad actions and good people is unfortunate. Here’s why: because it brands all bankruptcy debtors with the olde label, “bad!”


Nothing better-illustrates this confusion of bad with good than BAPCPA.

In BAPCPA, Congress cannot distinguish between good people seeking bankruptcy relief and the bad actions of olde.

In BAPCPA, Congress acted upon its belief that consumer debtors were abusing the Bankruptcy Code. The remedy Congress decided upon is to punish all individual conduct (the good and bad alike) by making bankruptcy relief more difficult to obtain.

And Congress succeeded royally, through BAPCPA, in making life difficult.

This Needs to Change

All of the above is unfortunate—and needs to change.

Lumping good and bad types of conduct together in bankruptcy, and then tarnishing all as bad, is unfortunate.

Today is not like the 1800s. Instead, we live in a credit-driven world. Honest people incur debt every day, and they do so with every reasonable expectation of repaying it. But even reasonable expectations go awry, and disasters do happen.


Congress needs to eliminate the punitive measures embodied in BAPCPA.


Footnote 1: Information on the 1800 bankruptcy enactments in England and United States is from, “The Bankrupt Law of America: Compared with the Bankruptcy Law of England,” by Thomas Cooper (1801).

Footnote 2.  Ratification of the U.S. Constitution occurred 11 years earlier (on March 4, 1789). The Constitution provides that “The Congress shall have power to . . . establish . . . uniform laws on the subject of bankruptcies throughout the United States.” The 1800 Act is the first Bankruptcy law enacted by Congress under the Constitution.

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