Current Bankruptcy Law

Bankruptcy Abuse Prevention and Consumer Protection Act of 2005

Congress made several significant changes to the bankruptcy law in 2005. Those changes made it harder for people with higher incomes to file for Chapter 7. Instead, they can file Chapter 13 where the debts they incurred are discharged only after they’ve repaid some portion of the debts.

Eligibility

Whether you’re eligible for Chapter 7 (discharge) or Chapter 13 (repayment) will depend on your income. If you have a higher income, you may not qualify to have all your debt discharged but will have the option to repay your debts under a new agreement.

The income criterion is based on the state in which you live. If your household income is equal to or lower than the median income for your state, you can still qualify for Chapter 7 bankruptcy—assuming you meet other qualifications. If your income is higher than the median, you must pass “the means test” in order to file for Chapter 7.

The law also requires documentation, so you must be prepared to show your pay stubs, bank records, tax returns, and provide additional information.

Additional Requirements

All debtors who file bankruptcy are also required to get credit counseling through an approved agency before filing, and additional counseling on budgeting and debt management before the bankruptcy can be discharged. Both these counseling requirements can be completed online.