Has Congress Slimmed Down the Hogs?: A Look at the Bapcpa Approach to Pre-Bankruptcy Planning
24 Pages Posted: 26 Mar 2006
Abstract
In April, 2005, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act ("BAPCPA"), the first major overhaul of bankruptcy law in 25 years. The proponents of BAPCPA were motivated primarily by a desire to put an end to bankruptcy abuse. The types bankruptcy abuse that BAPCPA's proponents wished to discontinue included liquidations by consumers who might be able to fund a repayment plan and the sheltering of assets in high-exemption states.
This paper focuses on the second type of abuse, pre-bankruptcy exemption planning. Prior to the enactment of BAPCPA, courts exercised an enormous amount of discretion in determining whether a debtor's conversion of non-exempt assets to exempt assets before bankruptcy was fraudulent as to creditors. The new legislation removes judicial discretion when certain types of asset conversions are involved, primarily conversions of personal property into exempt homesteads. In my article, I analyze whether these changes, which on their face seem to discourage pre-bankruptcy asset conversions, in fact impose any greater penalties on debtors than did the case law pre-BAPCPA.
Keywords: bankruptcy, fraudulent transfers, exemptions
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