Understanding Current Bankruptcy Laws

The most significant change to American bankruptcy law in the past several decades came in 2005, when Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act, commonly known as BAPCPA. This law changed the rules for filing both Chapter 7 and Chapter 13 bankruptcy in ways that still affect every case filed today.

If you are considering bankruptcy, you will run into these requirements during the process. Here is what the current law requires and how it affects your filing.

The Means Test: Qualifying for Chapter 7

Before BAPCPA, virtually anyone could file Chapter 7 regardless of their income. The 2005 law introduced the means test, which compares your household income to the median income for your state and household size. If your income falls below the median, you qualify for Chapter 7 automatically.

If your income is above the median, you are not necessarily disqualified. The second part of the means test looks at your disposable income after subtracting allowed expenses, which include housing, transportation, healthcare, and other necessary costs. Many people with above-median income still qualify for Chapter 7 after these deductions are applied.

In our experience handling cases throughout the Pittsburgh area, a large number of people who walk in worried about the means test end up qualifying without much difficulty. The calculation looks more intimidating than it usually turns out to be. We run these numbers at your initial consultation so you know exactly where you stand.

Required Credit Counseling Before Filing

The 2005 law added a requirement that every person filing bankruptcy must complete a credit counseling course from an approved agency within 180 days before filing. This is a brief session, usually lasting about an hour, that reviews your budget and discusses alternatives to bankruptcy.

The course can be completed online or by phone, and the cost is typically between $15 and $50. Some agencies waive the fee entirely for people who cannot afford it. We provide our clients with a list of approved agencies and can point you toward the quickest, most affordable options.

It is worth noting that this requirement is separate from the debtor education course required after filing. You need both to complete your case, but they happen at different points in the process. For a full overview of what to expect, visit our Bankruptcy 101 page.

Debtor Education Course After Filing

After your case is filed, you must complete a debtor education course, sometimes called a financial management course, before you can receive your discharge. This is a separate course from the pre-filing credit counseling, offered by different approved agencies.

The debtor education course covers budgeting, money management, and using credit responsibly after bankruptcy. Like the credit counseling course, it can be completed online or by phone and typically takes about two hours. The cost is similar, usually in the $15 to $50 range.

Your discharge will not be granted until the court receives your certificate of completion. We remind all of our clients about this requirement and make sure it gets done on time so there are no delays in your case.

Changes to Exemptions and Property Protection

BAPCPA also changed some rules around exemptions, which are the laws that determine what property you can keep when you file bankruptcy. In Pennsylvania, filers can choose between federal exemptions and state exemptions, and the 2005 law adjusted both in certain ways.

One notable change involves the homestead exemption. Under the current law, if you acquired your home within 1,215 days (about three and a half years) before filing, the homestead exemption is capped at approximately $189,050. This was designed to prevent people from buying expensive homes in states with generous homestead exemptions right before filing.

For most of our Pittsburgh-area clients, this cap is not a practical concern. But if you recently purchased a home or have significant equity, it is something we evaluate carefully during your consultation.

Income Documentation Requirements

The 2005 law increased the documentation requirements for bankruptcy filers. You now need to provide pay stubs or income records for the 60-day period before filing, and your tax returns for the most recent year must be filed before your case can proceed.

If you have not filed tax returns for recent years, that needs to be addressed before or shortly after filing. We work with our clients to make sure all documentation requirements are met, and we can connect you with tax preparation resources if needed.

Impact on Chapter 13 Repayment Plans

For Chapter 13 filers, BAPCPA introduced changes to how repayment plans are structured. The length of your plan is now tied to your income level. If your income is above the state median, your plan must run for five years. Below-median filers can propose a three-year plan, though they can extend it to five years if needed.

The law also changed how disposable income is calculated for Chapter 13 purposes, using standardized IRS expense allowances instead of actual expenses in some categories. This means the amount you pay into your plan may differ from what you might expect based on your actual monthly budget.

What This Means for Your Case

The bottom line is that bankruptcy still works. Despite the additional requirements BAPCPA introduced, millions of Americans have successfully filed for bankruptcy protection since 2005. The process has more steps than it used to, but the relief it provides is just as real.

At Bryan P. Keenan & Associates, we have been handling cases under these rules since the day they took effect. We know exactly what is required, how to meet every deadline, and how to position your case for success within the current framework. If you have questions about how the current law applies to your situation, contact us for a free consultation or visit our Bankruptcy Overview section to learn more.