How the New Bankruptcy Law Affects Small Business

On April 20, 2005, President Bush signed The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). Predictably, the media spin on the new law has been just in one direction: that BAPCPA will make it more difficult for consumers to shed their debts via a bankruptcy filing.

While the media spin is correct for the most part, BAPCPA's impact on small-business owners has generally been underreported. This month's article will paint the "big picture" on BAPCA for small businesses. Then next month we'll review the important details of BAPCPA from the perspective of a small-business owner.

An Avalanche of Bankruptcy Filings

The last time the United States government made a major revision to its bankruptcy laws was in the late 1970s. The then-new Bankruptcy Code replaced the ancient Bankruptcy Act and, in ways large and small, eventually redefined the term "bankruptcy" in our common consciousness from a somewhat tawdry act signifying personal or business failure to an intelligent debt-planning tool for business and personal use.

In BAPCPA, Congress has attempted to eliminate or minimize many of the "abuses" that have arisen during the past twenty or so years under the Bankruptcy Code. Although BAPCPA will definitely make it more difficult for both consumers and small businesses to use the Bankruptcy Code to shed their debts, Congress attempted to ameliorate the impact by giving everyone a six-month heads-up by not making the law effective until October of 2005.

It's important to note now that the death of "That '70s Bankruptcy Law" is fast approaching.

So far, the media's take on the passage of BAPCPA has been that it'll be a catastrophe for consumers. Given the fact that consumer catastrophe stories sell news, my prediction is that you'll start to see a massive media blitz from both the media and bankruptcy attorneys beginning in late summer about the "evils" of BAPCPA.