BAPCPA: A Wrong-Headed Reversion to the Idea of Punishing Debtors

Italy Choir Trip part I 2011 132
A place of punishment (photo by Marilyn Swanson)

By:  Donald L. Swanson

Over the years, there have been some really-bad ideas for punishing debtors.

Examples from Olden Times

Under Draco’s Law, back in Athens of the 600s, death and dismemberment could be a debtor’s fate (not sure which occurred first), with sale into slavery as an alternative.

Fast forward to Merry Olde England of the 1600s and 1700s, where slavery and dismemberment were off the table—but death by hanging was still an option. The last person hung in England for bankruptcy fraud occurred in 1813.

Then, moving across the pond to England’s American colonies, back in the 1700s, death is not one of the available penalties. But imprisonment certainly is—and debtor prisons persist in these United States well into the 1830s before being abolished.

Thereafter, for the next century and a half, U.S. bankruptcy laws retain the concept of punishing debtors. For example:

  • we presume a debtor’s dishonesty; and
  • our bankruptcy laws favor creditors—even as such laws became more debtor friendly.

Nonetheless, the concept of a “fresh start” for the “honest but unfortunate debtor” begins to expand.

Bankruptcy Code of 1978—A New Approach

In the Bankruptcy Code in 1978, we abandon the idea that debtors should be punished.

And we flip the presumption: a debtor is now presumed honest, unfortunate and deserving of bankruptcy relief, until evidence shows otherwise.

And we eliminate measures designed to punish debtors.

BAPCPA’s Reversion to Debtor Punishment

But, alas, we return to the punishment idea in 2005 with enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act (commonly known as “BAPCPA”).

BAPCPA is a horrible idea.  Here’s how it came to be:

  • Congress becomes alarmed when, one year in the midst of a recession, a million people file bankruptcy; and
  • Of particular concern to Congress is the fact that many of such bankruptcy filers are people in the middle-class of our society.

So . . . Congress reverts to the presumption of dishonesty and abusive behavior and decided to enact provisions to punish debtors. BAPCPA is what results.

Two Examples of BAPCPA Punishments for Middle-Class Debtors

Let’s define the middle-class as all individuals who earn an income substantially above the poverty line, whose debts are primarily of a consumer type. These are the people Congress presumes, back in 2005, to be abusing the bankruptcy system. And these are the people Congress wants to punish through BAPCPA.

Here are two examples of how Congress decides to punish middle-class bankruptcy debtors through BAPCPA.

–Excluding Middle-Class Debtors from Chapter 7

One way to punish middle-class debtors, Congress decided, is to keep them out of straight liquidation under Chapter 7. After all, a no-asset Chapter 7 case takes only about six months for a debtor to complete, from start to discharge.

That’s way too easy, Congress decided. So, to make bankruptcy life harder for the middle-class, Congress decided to require that they file Chapter 13, instead.  Note: it takes about six months plus five years for a middle-class debtor to complete a Chapter 13 case, from start to discharge.

  • “Take that, you middle-class debtors!” is what Congress declares at BAPCPA’s enactment.

Never mind that five years of plan payments rarely provide substantial money for unsecured creditors in Chapter 13. Never mind that a debtor will never be able to build a rainy day fund or nest egg during those five years. Never mind that every middle-class person is likely to face financial adversity in any five years span of time. None of that matters. Punishment is the goal in BAPCPA.

–Penance: Five Years of Disposable Income

Under BAPCPA, middle-class debtors must commit five years of disposable income to creditors.  That’s their penance to atone for financial sins.

Never mind that a middle-class person might need bankruptcy because:

  • medical bills are mounting and it’s a struggle to keep working—this person needs to be punished, Congress declares!
  • a deteriorating economy costs one spouse a means of employment, and income from both is needed to meet expenses—these people need to be punished, Congress declares!
  • tragedy strikes, creating economic devastation that a family cannot survive—these people need to be punished, Congress declares!

Congress is Enamored with Its Penance Idea

Congress is enamored with this multi-year penance idea—so much so, that it has incorporated the penance idea into every reorganization option under the Bankruptcy Code: see Chapter 13 for individuals, Chapter 12 for farmers, Subchapter V for small businesses, and Sec. 1129(a)(15) for individual Chapter 11 debtors who have too much debt for Subchapter V.

Punishment is Wrong-Headed Here

I practiced law for 25 years under the Bankruptcy Code before enactment of BAPCPA (from 1980 to 2005), representing all sides.

I remember, as the BAPCPA bill worked its way through Congress back in 2005, being disturbed by its punishment-focus, by what that focus might mean for our bankruptcy system, and by the harm it might cause to decent and honest people.

I also remember thinking, back then, that:

  • I had seen little abuse and a lot of helpful results from our bankruptcy laws, as they existed during those 25 years before 2005;
  • of all the bankruptcy cases I could recall (and there were lots of them), I could think of only one were a debtor tried to abuse the bankruptcy system and actually got away with it; and
  • BAPCPA would damage our bankruptcy system, generally, and our middle-class debtors in particular—and I was right!


Congress did a terrible thing, in adopting BAPCPA. It reintroduced the old ideas of, (i) presuming debtors to be dishonest and undeserving of a discharge, and (ii) requiring punishment for middle-class debtors in bankruptcy.

BAPCPA needs to go!

** If you find this article of value, please feel free to share. If you’d like to discuss, let me know.

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