Legislative History

• The most recent round of bankruptcy reform began with the drafting of new federal legislation in 1997. The House of Representatives passed the Bankruptcy Reform Act of 1999, and a different version of this bill passed the Senate in 2000, when the name of the law was simply changed to the Bankruptcy Reform Act of 2000. The varying laws were reconciled and the Act was then passed by both the House and the Senate.
  
  

Controversy

• The bill was controversial, and opponents claimed that it did not afford balanced treatment that would treat debtors fairly. President Clinton objected specifically to the bill's failure to limit homestead exemptions, which allowed wealthy individuals to escape the repayment of debts by sheltering their assets in an expensive home -- an option not open to most middle-class debtors.
  
  

Pocket Veto

• Clinton delayed signing the bill until Congress adjourned and could take no action to override his veto. This "pocket veto" effectively killed the legislation. Many features of the 2000 law survived in later versions, however, including a "means test" for Chapter 7 filers. The "means test" represented a fundamental change in the bankruptcy law, as traditionally debtors were not subject to any statutory financial restrictions that would prevent them from filing a Chapter 7 petition.
  
  

Reform in 2005

• Bankruptcy reform finally passed as The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 and was signed into law by President George W. Bush. The law applies financial guidelines for the filing of Chapter 7 bankruptcies, effectively routing more people into a Chapter 13, in which debts are partially repaid. If an individual's gross income exceeds the median income in the state where they live during the six months prior to the bankruptcy filing, they are required to calculate their disposable income to determine if they must file a Chapter 13 bankruptcy instead. Bankruptcy filers are also required to take a course in credit management, and the law also requires attorneys to more thoroughly investigate statements made by debtors on their petitions. Finally, the law raised filing fees, making bankruptcy a more expensive process.