Order Code RL32765
CRS Report for Congress
Received through the CRS Web
The “Bankruptcy Abuse Prevention and
Consumer Protection Act of 2005,” S. 256,
in the 109th Congress
February 9, 2005
Robin Jeweler
Legislative Attorney
American Law Division
Congressional Research Service ˜ The Library of Congress

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The “Bankruptcy Abuse Prevention and Consumer
Protection Act of 2005,” S. 256, in the 109th Congress
Summary
On February 1, 2005, Senator Grassley introduced S. 256, the “Bankruptcy
Abuse Prevention and Consumer Protection Act of 2005” (BAPCA), in the 109th
Congress, 1st Session. The bill is similar to that passed by the House in the 108th
Congress. S. 256 addresses many areas of bankruptcy practice, including consumer
filings, small business bankruptcy, tax bankruptcy, ancillary and cross-border cases,
financial contract provisions, amendments to chapter 12 governing family farmer
reorganization, and health care and employee benefits. This report surveys selected
provisions that have been of interest to past Congresses that have considered
comparable legislation.

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Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Survey of Selected Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

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The “Bankruptcy Abuse Prevention and
Consumer Protection Act of 2005,” S. 256,
in the 109th Congress
Introduction. On February 1, 2005, Senator Grassley introduced S. 256, the
“Bankruptcy Abuse Prevention and Consumer Protection Act of 2005” (BAPCA),
in the 109th Congress, 1st Session.1 The bill is similar to that passed by the House in
the 108th Congress.2 Like the House-passed bill from the 108th Congress, S. 256
omits the provision making nondischargeable liability for violation of protective
orders and violent protests against providers of “lawful services,” including
reproductive health services.
The U.S. Bankruptcy Code, 11 U.S.C. § 101 et seq., is divided into eight
chapters — chapters 1, 3, 5, 7, 9, 11, 12, and 13. Chapters 1, 3, and 5 govern general
procedures involving management and administration of the bankruptcy estate which
are applicable, as specified, to the operative chapters. Chapters 7 through 13, the
operative chapters, address the different forms of bankruptcy relief. Chapter 7
governs liquidation; chapter 11 governs business reorganization; chapter 12, family
farmer reorganization; and, chapter 13, consumer reorganization.
Also codified under Title 11 of the United States Code are the Rules of
Bankruptcy Court and officially authorized bankruptcy forms.

Survey of Selected Provisions. S. 256 addresses many areas of bankruptcy
practice, including consumer filings, small business bankruptcy, tax bankruptcy,
ancillary and cross-border cases, financial contract provisions, amendments to
chapter 12 governing family farmer reorganization, and health care and employee
benefits.
The chart below surveys selected provisions that have been of interest to past
Congresses that have considered comparable legislation.
1 151 CONG. REC. S768 (daily ed. Feb. 1, 2005).
2 H.R. 975, 108th Cong., 1st Sess. 2003. See H.R. Rept. 108-40, 108th Cong., 1st Sess. (2003).

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CRS-2
Selected Provisions
S. 256, the Bankruptcy Abuse Prevention and
Consumer Protection Act of 2005, 109th
Congress, 1st Session.
Means test, 11 U.S.C. § § 704, 707:
Implementation
Would amend 11 U.S.C. § 707 to permit creditors, the
trustee, or any party in interest to challenge a debtor’s
eligibility to file under chapter 7. If indicated, the
U.S. trustee must file a statement that the debtor’s
case is a presumed abuse of chapter 7. § 102.
Definition of “current
Excludes Social Security benefits; payments to
monthly income”
victims of war crimes or crimes against humanity; and
payments to victims of international terrorism . § 102.
Presumed abuse
Debtor presumed to be abusing chapter 7 if current
monthly income, excluding allowed deductions,
secured debt payments, and priority unsecured debt
payments, multiplied by 60, would permit a debtor to
pay not less than the lesser of (a) 25% of nonpriority
unsecured debt or $6,000 (or $100 a month),
whichever is greater, or (b) $10,000.
In addition to the means test, the court may find that
the debtor’s filing was in bad faith or that the totality
of the circumstances demonstrates abuse. § 102.

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CRS-3
Selected Provisions
S. 256, the Bankruptcy Abuse Prevention and
Consumer Protection Act of 2005, 109th
Congress, 1st Session.
Calculation of
Expenses to be calculated as specified under the
permissible monthly
National Standards and Local Standards, and the
living expenses
debtor’s actual monthly expenses for the categories
specified as Other Necessary Expenses issued by the
Internal Revenue Service for the area in which the
debtor resides. A debtor may also subtract, if
reasonably necessary, an allowance of up to 5% of the
IRS food and clothing categories.
Individualized expenses may include debts incurred to
protect the debtor’s family from domestic violence;
actual expenses for the care and support of
nondependent, elderly, ill or disabled household or
family members; private or public school tuition of up
to $1,500 per year; administrative expenses for
chapter 13 candidates; average monthly expenses for
secured and priority debts; actual expenses for
housing and utilities, if reasonably necessary; and,
charitable contributions of up to 15% of gross
income.3
Dollar amounts will be adjusted at three-year intervals
in accordance with the Consumer Price Index. § 102.
To rebut the
A debtor must demonstrate and justify “special
presumption of abuse
circumstances” in order to adjust current monthly
income determination. § 102.
3 Charitable contributions are permissible under current law, 11 U.S.C. § 707(b), and would
not be altered by the bill.

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CRS-4
Selected Provisions
S. 256, the Bankruptcy Abuse Prevention and
Consumer Protection Act of 2005, 109th
Congress, 1st Session.
Safe harbor exemption
Only the judge, U.S. trustee or bankruptcy
from the means test
administrator may bring a substantial abuse motion if
the debtor’s current monthly income is less than the
highest national or the applicable State median family
income.
No party may make a motion to convert the debtor to
chapter 13 if the debtor (and spouse combined) have
a monthly income equal to or less than the state
median household income reported by the Bureau of
the Census.
The U.S. trustee may also decline to file a motion to
convert if the debtor’s monthly income is between
100% and 150% of the national or applicable State
median income, and would permit a debtor to pay the
lesser of (a) 25% of nonpriority unsecured debt or
$6,000, whichever is greater, or (b) $10,000. § 102.
IRS Living Standards
A chapter 13 debtor’s “disposable income” which
applicable to chapter 13
may be directed to the repayment plan will be
reorganization plan
calculated in accordance with IRS Living Standards if
the debtor meets the applicable means test for state
median family income.
A chapter 13 debtor may deduct from plan payments
the costs of health insurance; domestic support
obligations; charitable contributions of up to 15% of
gross income; and expenses necessary to operate a
business.
§ 102.

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CRS-5
Selected Provisions
S. 256, the Bankruptcy Abuse Prevention and
Consumer Protection Act of 2005, 109th
Congress, 1st Session.
Attorney sanctions for
If a panel trustee brings a successful motion for
improper motion
dismissal or conversion, counsel for the debtor may be
liable to reimburse the trustee for costs, attorneys’
fees, and payment of a civil penalty if the court finds
a violation of Bankruptcy Rule 9011.
An attorney’s signature on the bankruptcy petition
certifies that the attorney has performed an
investigation into the circumstances that gave rise to
the petition; that the attorney has determined that the
petition is well grounded in fact and is warranted by
existing law; and that the attorney has no knowledge
after an inquiry that the information in accompanying
schedules is incorrect. § 102.
Creditor sanctions for
The court may award the debtor costs for contesting
an improper motion
an unsuccessful motion to convert if the court finds
that the motion violated Rule 9011, or was intended to
coerce the debtor into waiving rights under the
Bankruptcy Code. A small business creditor whose
claim is less than $1000 is not liable for sanctions.
§ 102.
Dismissal of filings by
A crime victim or party in interest may request
persons convicted of
dismissal of the voluntary bankruptcy case of the
violent crimes or drug
convicted debtor. The court must grant the
trafficking
dismissal unless the filing is necessary to satisfy a
domestic support obligation. § 102.
Selected consumer provisions
Mandatory credit
Debtor must undergo credit counseling within 180
counseling
days of filing, and may not obtain a discharge until
completion of a personal financial management
instructional course.
The jurisdictional filing requirement may be waived
for 30 to 45 days if the debtor certifies exigent
circumstances or was denied service from an
approved counseling agency.
The U.S. trustee or bankruptcy administrator for the
judicial district is directed to oversee and approve
nonprofit budget and credit counseling agencies.
§ 106.

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CRS-6
Selected Provisions
S. 256, the Bankruptcy Abuse Prevention and
Consumer Protection Act of 2005, 109th
Congress, 1st Session.
Promotion of alternative
A creditor’s allowable claim may be reduced by 20%
dispute resolution
if a court finds that the creditor “unreasonably refused
to negotiate a reasonable alternative repayment
schedule proposed by an approved credit counseling
agency that provides repayment of at least 60% of the
debt, and the debtor can prove by “clear and
convincing” evidence that a creditor unreasonably
refused to consider the offer.” § 201.
Reaffirmation
Imposes enhanced requirements for approval of a
agreements
reaffirmation agreement when the debtor is not
represented by counsel but exempts credit unions
from creditor disclosure requirements; requires U.S.
Attorney and FBI to investigate abusive reaffirmation
practices. § 203.
Preserving defenses
Amends 11 U.S.C. § 363 to add a new subsection
against predatory
preserving defenses that a party to a consumer credit
lenders
transaction may have if the contract is sold by a debtor
in bankruptcy. § 204.
GAO reaffirmation study
Requires a study of reaffirmation practices and a
report to Congress. § 205.
Domestic support owed
Would move domestic support obligations to first
to individuals and
priority, which is currently allocated to administrative
government units made
expenses of the bankruptcy estate. Administrative
first priority
expenses would become second priority.
However, if a trustee is appointed under chapter 7, 11,
12, or 13, the trustee’s expenses may be paid before
domestic support. § 212.
Trustee notification of
Would direct the trustee to notify a priority child
child support claim
support recipient of the existence of a state child
holders
support enforcement agency, and, upon discharge, the
existence of nondischargeable and reaffirmed debt.
§ 219.
Priority assigned to
A new § 507 tenth priority is created for unsecured
claims for liability
claims for liability incurred by a debtor from
incurred by the debtor
operating a vessel while under the influence of
DUI
alcohol or drugs. Claims of this nature are also
nondischargeable. § 223.

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CRS-7
Selected Provisions
S. 256, the Bankruptcy Abuse Prevention and
Consumer Protection Act of 2005, 109th
Congress, 1st Session.
Retirement savings
Would clarify and expand the law to provide that
exemption broadened
retirement accounts that are tax exempt under the
Internal Revenue Code are exempted from the
debtor’s estate up to a $1,000,000 cap, which may be
increased if “the interests of justice so require.”
§ 224.
Exemption for saving for
Subject to certain IRS requirements, excludes funds
postsecondary education
up to $5000 per specified beneficiary made within a
year of filing in an education individual retirement
account and/or any funds used to purchase a tuition
credit or certificate under a qualified state tuition
program. §225.
Protection of nonpublic
Prohibits the transfer by the debtor of personal
personal information
customer information unless approved by the court.
and consumer privacy
Provides for the appointment of a consumer privacy
ombudsman
ombudsman if a debtor wishes to sell or lease such
information. §§ 231,232.
Prohibition on
Debtor may not be required to disclose the name of a
disclosure of identify of
minor child in public records. U.S. trustee or auditor
minor children
may have access to nonpublic records maintained by the
court. § 233.
Lien stripping on
Chapter 13 debtors would not be permitted to
security interests in
bifurcate security interests in an automobile purchased
consumer goods
within 910 days (2½ years) before the filing; or in
(cramdown)
other consumer goods purchased within 1 year of the
filing. § 306.

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CRS-8
Selected Provisions
S. 256, the Bankruptcy Abuse Prevention and
Consumer Protection Act of 2005, 109th
Congress, 1st Session.
Homestead exemption
Definition of “debtor’s residence” includes mobile
homes or trailers. § 306.
Imposes lengthened residency requirements to qualify
for state exemption. § 307.
Reduces the value of the exemption if the value is
attributable to property that the debtor disposed of
within 10 years of bankruptcy with the intent to
hinder, delay or defraud a creditor. § 308.
Debtors’ electing a state homestead exemption may
not exempt any interest acquired within 1215 days
(3.3 years) of filing which exceeds in the aggregate
$125,000, unless the value in excess of that amount
occurs from a transfer of residences within the same
state. Exempts family farmers from the limit.
Limitations may not apply to amounts reasonably
necessary to support the debtor and any dependents.
Imposes a firm $125,000 cap on an individual who is
convicted of specified felonies (including violations
of federal securities laws) or who commits criminal
acts, intentional torts, or willful or reckless
misconduct that caused serious physical injury or
death within 5 years preceding the bankruptcy filing.
§ 322.
Residential lease
Adds new provisions permitting a landlord/lessor to
excepted from the
bypass the automatic stay to continue with a
automatic stay
residential eviction of a tenant/lessee. § 311.
Restrictions on chapter
Extends time within which a debtor who has received
7 and chapter 13 filings.
a chapter 7 discharge may not receive another from 6
to 8 years.
Amends chapter 13 to disallow discharge if the debtor
filed under chapters 7, 11, or 12 within 4 years prior
to the 13 filing, or under chapter 13, within 2 years of
the subsequent filing. § 312.

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CRS-9
Selected Provisions
S. 256, the Bankruptcy Abuse Prevention and
Consumer Protection Act of 2005, 109th
Congress, 1st Session.
Definition of
Defines household goods to include clothing,
“household goods”
furniture, appliances, 1 radio, 1 television, 1 VCR,
other electronic entertainment equipment with a
market value of under $500, linens, china, crockery,
kitchenware, educational materials used by minor
dependent children, medical equipment and supplies,
furniture used exclusively by minors and disabled or
elderly dependents, personal effects, 1 personal
computer and antiques and jewelry with a value less
than $500. § 313.
Debtor’s duty to
Modifies debtor filing requirements under 11 U.S.C.
disclose tax filings.
§ 521 to include federal tax returns. § 315.
Plan duration
Chapter 13 plans to have 5 year duration for families
whose monthly income is not less than the highest
state median family income. Families below the
highest state median income would have 3 year plans.
§ 318.
Wages withheld by an
Withheld wages for contributions to employee benefit
employer for
plans would be excluded from the debtor (employer’s)
contributions to
estate. § 323.
employee benefit plans
Valuation of collateral
A secured creditor’s allowable claim would be the
retail cost to replace the item without deduction for
costs of sale or marketing. Personal property’s
replacement value would be the price a retail
merchant would charge for like items. § 327.
Wages and benefits
Makes specified prepetition and postpetition wages
awarded as back pay
and benefits awarded as back pay in a judicial
proceeding a high-priority administrative expense.
§ 329.
Audits
The Attorney General is directed to establish a
procedure to ensure random audits of no less than 1
out of every 250 individual filings; the U.S. trustee is
authorized to enter into contracts with auditors, and to
take action when misstatements in the debtor’s
petition and schedules are identified. § 603.

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CRS-10
Selected Provisions
S. 256, the Bankruptcy Abuse Prevention and
Consumer Protection Act of 2005, 109th
Congress, 1st Session.
Nondischargeable consumer debts
Debts to government
Defines “domestic support obligation” to include
units for domestic
debts owed to or recoverable by a governmental unit.
support
§§ 211, 215.
Expanded definition of
Adds qualified educational loans as defined under §
student loan
221 of the IRC to those educational loans that are
currently nondischargeable. § 220.
Loan repayments to
Makes nondischargeable, i.e., allows an employer to
debtor’s retirement
continue to withhold, loan repayments to debtor’s
savings or thrift plan
savings/retirement plan from debtor’s wages.
§ 224(c).
Consumer debts
Consumer debts owed to a single creditor for more
presumed fraudulent
than $550 for “luxury goods” incurred within 90 days
of filing; and cash advances for more than $750 under
an open end credit plan within 70 days of filing are
presumed to be nondischargeable. § 310.
Debts incurred to pay
Debts incurred to a third party to pay a tax to a state or
nondischargeable debts
local government unit become nondischargeable.
are nondischargeable
§ 314.
Expanded definition of
Expands the types of post-petition condo and
nondischargeable
hom eowners associ at i on fees t hat are
condominium and
nondischargeable by omitting requirement that in
homeowners association
order to be nondischargeable the debtor must reside in
fees
the residence postpetition. § 412.
FEC penalties
Fines and penalties under federal election law are
nondischargeable
made nondischargeable. § 1235.

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CRS-11
Selected Provisions
S. 256, the Bankruptcy Abuse Prevention and
Consumer Protection Act of 2005, 109th
Congress, 1st Session.
Consumer credit disclosure
Amendments to the
TILA amended to require enhanced minimum
Truth in Lending Act
payment disclosures under an open end credit plan;
(TILA)
enhanced disclosures regarding the tax deductibility of
credit extensions which exceed the fair market value
of a dwelling for credit transactions secured by the
consumer’s dwelling; disclosures related to
introductory “teaser” rates; disclosures related to
Internet-based open end credit solicitations; and
disclosures related to late payment deadlines and
penalties. TILA would be amended to prohibit
termination of a credit account because the consumer
has not incurred finance charges. §§ 1301-1306.
Study of bankruptcy
The Board of Governors of the Federal Reserve is
impact of credit
directed to study bankruptcy impact of credit
extended to dependent
extensions to students in postsecondary school.
students
§ 1308.
Consumer credit studies
The Board of Governors of the Federal Reserve is
directed to study existing protections for consumers
for unauthorized use of a dual use debit card. § 1307.
Business bankruptcy
Increased employee
Increases the high-priority categories for employee
wage and benefit
wages and benefits from $4925 earned within 90 days
priority
of filing to $10,000 earned within 180 days of filing.
§ 1401.
Trustee to appoint
Amends 11 U.S.C. § 1114 to provide that in the event
retiree committees
that a retiree committee is appointed, the appointment
of members will be made by the U.S. Trustee, not the
court. § 447.
Retiree insurance
Amends 11 U.S.C. § 1114 to allow the court to
benefits
reinstate retiree benefits that are modified by a debtor
within 180 days prior to the bankruptcy filing unless
the court finds that the balance of equities supports
such modifications. § 1404.
Avoidable preferences
Amends 11 U.S.C. § 547 to liberalize the rules for
defending against an avoidable transfer in the ordinary
course of business; creates a new preference exception
to aggregate transfers of less than $5,000. § 409.

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CRS-12
Selected Provisions
S. 256, the Bankruptcy Abuse Prevention and
Consumer Protection Act of 2005, 109th
Congress, 1st Session.
Fraudulent transfers
Amends 11 U.S.C. § 548 to increase the time period
for setting aside certain fraudulent transactions from
one year to two and expressly includes certain
transfers made pursuant to an employment contract.
§ 1402.
Small business
Subtitle B of Title IV has provisions defining a “small
bankruptcy
business” for chapter 11 purposes as one with debts
under $2,000,000. The debtor’s period of exclusivity
to file a reorganization plan is 180 days. A plan and
disclosure statement must be filed within 300 days of
the initial filing.
A plan must be confirmed within 45 days of filing in
bankruptcy. § 438.
Provisions require establishment of uniform
accounting and reporting standards for small
businesses. Grounds for appointment of a trustee and
the trustee’s general supervisory duties are expanded,
as are grounds for dismissal or conversion of the case.
§§ 431-442.
Health care business
Defines a broad variety of service-providing health
bankruptcy
care business, including skilled nursing facilities,
assisted-living facilities and homes for the aged.
Provides for the disposition and disposal of patient
records and for the costs of closing the facility,
including the transfer of patients. Permits the court
to appoint a patient care ombudsman to monitor
patient care and represent the interest of patients.
Excludes participation in medicare from the automatic
stay. §§ 1101- 1106.
Trustee to appoint
Amends 11 U.S.C. § 1114 to provide that in the event
retiree committees
that a retiree committee is appointed, the appointment
of members will be made by the U.S. Trustee, not the
court. § 447.

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CRS-13
Selected Provisions
S. 256, the Bankruptcy Abuse Prevention and
Consumer Protection Act of 2005, 109th
Congress, 1st Session.
Chapter 11 corporate
Confirmation of a plan under chapter 11 would not
nondischargeability
discharge a corporate debtor from debts under 11
U.S.C. § 523(a)(2) that are owed to a domestic
governmental unit for property obtained by false
pretenses or representations; or owed to an individual
under subchapter III of chapter 37 of Title 31, U.S.C.;
or any debt for taxes for which the debtor willfully
attempted to evade or made a fraudulent return.
§ 708.
Title X dealing with
Makes chapter 12 permanent. Measure to be effective
chapter 12 family
upon enactment; includes jurisdictional debt limit in
farmers
amount subject to readjustment in accordance with
CPI; subordinates certain high priority unsecured
claims owed to the government to nonpriority claims.
Measure to take effect upon enactment, but will not
apply to pending cases. §§ 1001-1003.
Raises jurisdictional debt limit of family farmers to
$3,237,000 and lowers percentage requirement of
income derived from farming and expands the time
frame for measuring farm income from one to three
years. §§ 1004, 1005.
Prohibits retroactive assessment of disposable income.
§ 1006
Amends chapter 12 to include “family fishermen.”
§ 1007.

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CRS-14
Selected Provisions
S. 256, the Bankruptcy Abuse Prevention and
Consumer Protection Act of 2005, 109th
Congress, 1st Session.
General provisions
In forma pauperis filings Directs the Judicial Conference to prescribe
procedures for waiving bankruptcy fees for an
individual debtor under chapter 7 whose income is
less than 150% of the official poverty line and who is
unable to pay the fee in installments. § 418.
Bankruptcy judgeships
Creates new temporary bankruptcy judgeships for
designated districts. § 1223.
Procedure to certify
Establishes procedures to permit direct appeals from
appeals from a
a bankruptcy court to a court of appeals if the decision
bankruptcy court to a
involves a substantial question of law for which there
court of appeals
is no controlling decision; a question requiring
resolution of conflicting decisions; or, a matter of
public importance. §1233.
Involuntary Bankruptcy
Makes technical corrections made to 11 U.S.C. § 303
dealing with involuntary bankruptcy. Measure
applies upon enactment, but not to pending cases. §
1234.
General effective date
Subject to express provisions otherwise in specified
titles, the new law will take effect 180 days after
enactment and will not apply to cases commenced
before the effective date. § 1501.

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