Consumer Bankruptcy After the Fall: U.S. Law Under S. 256

This paper examines the consumer bankruptcy system in the United States after the enactment in April 2005 of S. 256, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. The paper was prepared for a workshop on comparative commercial and consumer law at the University of Toronto in the fall of 2005. The bulk of the paper is devoted to a detailed examination of the workings of the means test, the Byzantine new gate-keeping provision that tests whether an individual consumer debtor may proceed with a liquidation bankruptcy case under chapter 7 of the U.S. Bankruptcy Code. The paper also examines more briefly four other aspects of the revisions to the U.S. consumer bankruptcy system: (1) the creation of entry barriers for a consumer debtor to obtain bankruptcy relief; (2) the weakening of the discharge available to consumer debtors; (3) windfalls to secured creditors; and (4) limitations to the homestead exemption. An Appendix includes a letter that 92 law professors sent to the United States Senate prior to enactment of the bill and which opposed the bill; the author was one of the signatories.