Bankruptcy Myth: Congress Eliminated Bankruptcy Law in 2005

Welcome to Bankruptcy Law Myths & Facts

Today’s Myth: Congress eliminated bankruptcy law protection in 2005.


This is a common myth but it is simply not true.

Creditors want you to believe this is the case because they do not want you to know that you have options other than what they want you to do.

In 2005, there was a lot of fear-based advertising by bankruptcy attorneys right before the new bankruptcy law went into effect. This led to the myth that bankruptcy was no longer available to people who need bankruptcy help.



Credit industry legislation changed the bankruptcy law to eliminate some but not all debtor’s rights

The credit industry wrote the new bankruptcy legislation trying to change bankruptcy law to wipe out as much as possible of the rights of consumer and small business debtors. Fortunately, their success was not complete

To understand what happened you need to know a few facts.

First, prior to 2004 the bankruptcy laws worked as they should. Good people who needed help got the bankruptcy protection they needed. Bad people who were committing fraud & flakes who did not need bankruptcy help were denied a discharge of their debts.

Yes, a few bad people who lied or hid assets and did not deserve bankruptcy protection ended up having their debts discharged. However, these were relatively few and, if found out, many had their discharges revoked. The credit industry did not like the fact that the bankruptcy laws worked.

So, devious villains that they are, they thought, “gee what could us creditors do to break the system?”


Then, as any villain with lots of money would do, they thought, “gee we can rewrite the bankruptcy laws in our favor.” which is exactly what they did.

They paid bribes, … err… political contributions to get the legislation passed.

They then called the legislation the Bankruptcy Abuse Prevention & Consumer Protection Act of 2005. This new bankruptcy law supposedly passed to “protect” society from bad people who could pay their creditors.

If it were labeled using truth in advertising, it should have been called the “Bankruptcy Abuse Persecution of Consumers, & Creditor’s Protection Act of 2005.”


Of course, it was the proverbial wolf in sheep’s clothing.


The new bankruptcy law is more complex and dangerous

The bankruptcy law was designed to make it dangerous for people with income or assets such as a home to file without the advice and skill of a bankruptcy attorney.

Many people without representation by a good bankruptcy lawyer lose cars, bank accounts, tax refunds and even their homes.

I know because I regularly get people in who are losing things because of poor or non-existent representation. Some of these are too late to help, as you can’t un-ring the bell as the saying goes.

They risked thousands of dollars, some hundreds of thousands of dollars to save the cost of hiring a good bankruptcy lawyer, and lost much more than the attorney would have cost them in the first place.

Let’s put it this way, would you want to use the veterinarian’s assistant to do brain surgery on you because they can read a book on the subject and will charge you less money than the brain surgeon will?

There are many people out there, including paralegals and unfortunately some attorneys, that think bankruptcy is just about filling out papers. It is not. It is about knowing where the land mines are.

It is about timing, exemption planning, income planning, tax issues, why you may want to change banks, understanding how the judges interpret the means test and so much more.

Bankruptcy is only a tool. One among many to use to help people. The real work is in prebankruptcy planning. That is where the quality of the bankruptcy attorney makes all the difference in the result obtained.

If you think you need good advice as to your options in dealing with your financial problems, don’t make seeing a bankruptcy attorney your last resort. That is true even if you do not intend to file a bankruptcy or if filing bankruptcy may be a choice of last resort for you.

You need to know all your rights and options before you start making financial decisions that could come back to haunt you.

Isn’t it wise to get as much knowledge as possible?

Remember the saying, “Knowledge is power.”

Isn’t it time you got your power back?

I’m Gary Fraley.  I am a California State Bar Certified Bankruptcy Law Specialist. I have been helping people just like you for over 35 years. Call me now at (916) 485-5444 to schedule your free bankruptcy law consultation with an attorney.


Print Friendly, PDF & Email

Leave a Reply