Consumer bankruptcy is a vital tool for individuals facing overwhelming debt. In 2024, the requirements for filing consumer bankruptcy are dictated by federal statutes, primarily under Title 11 of the United States Code, commonly known as the Bankruptcy Code. This article will explore the 2024 requirements for consumer bankruptcy, the necessity of an attorney, and upcoming changes for 2025.
Types of Consumer Bankruptcy: Chapter 7 and Chapter 13
Two primary types of consumer bankruptcy are available for individuals:
- Chapter 7 Bankruptcy (liquidation): This option allows the debtor to discharge most unsecured debts, like credit card debt and medical bills. However, non-exempt assets may be sold to repay creditors.
- Chapter 13 Bankruptcy (reorganization): This type is suitable for individuals who have a regular income and wish to create a repayment plan to catch up on debts over three to five years.
2024 Requirements for Filing Bankruptcy
The requirements for filing bankruptcy under Chapter 7 or Chapter 13 are governed by the Bankruptcy Code and remain consistent in 2024.
- Means Test (11 U.S.C. § 707(b)): To qualify for Chapter 7 bankruptcy, a debtor must pass the means test. This test compares the debtor’s income to the median income for a household of the same size in the debtor’s state. If the debtor’s income is below the median, they may file for Chapter 7. If above, Chapter 13 may be the only option.
- Credit Counseling (11 U.S.C. § 109(h)): A debtor must complete a credit counseling course from an approved provider within 180 days before filing for bankruptcy. This requirement applies to both Chapter 7 and Chapter 13 cases.
- Filing Fees: Both Chapter 7 and Chapter 13 require the payment of filing fees. For Chapter 7, the filing fee is $338, and for Chapter 13, it is $313. Fee waivers are available for low-income filers.
- Petition and Documentation: A debtor must file a bankruptcy petition along with detailed financial documentation, including a list of creditors, assets, income, and expenditures. These filings are critical in determining eligibility and ensuring transparency.
Is an Attorney Needed for Bankruptcy?
Technically, a debtor is not required to have an attorney to file for bankruptcy. The process is open to pro se filers, meaning individuals can represent themselves. However, hiring a bankruptcy attorney is highly recommended for several reasons:
- Complexity of Bankruptcy Law: The bankruptcy process is highly technical, with strict deadlines, complex forms, and detailed financial disclosures. Mistakes can lead to a dismissal of the case or denial of the discharge.
- Legal Representation in Court: Debtors may need to appear in bankruptcy court, and an attorney can provide vital representation during hearings, particularly in contested cases.
- Protecting Assets: An attorney can help filers maximize the exemptions allowed by their state to protect essential assets like homes, vehicles, and retirement accounts.
“According to the American Bankruptcy Institute (ABI), pro se filers are often less successful in achieving a discharge of their debts, further emphasizing the importance of legal counsel,” shares bankrupcty attorney, Holly Hines.
Expected Changes for 2025
Several updates and changes to bankruptcy law are expected for 2025. These proposed changes stem from a combination of economic factors and legislative reform aimed at addressing modern financial challenges.
- Higher Median Income for the Means Test: The means test thresholds are updated annually. With inflation and rising incomes, the median income is expected to rise in 2025, which may make it easier for some individuals to qualify for Chapter 7 bankruptcy.
- Potential Updates to Homestead Exemptions: In some states, there may be efforts to adjust homestead exemption limits, allowing filers to protect more equity in their homes from liquidation in Chapter 7 cases.
- Changes to Student Loan Discharge Rules: There is increasing pressure to reform the treatment of student loan debt in bankruptcy. While student loans are notoriously difficult to discharge under 11 U.S.C. § 523(a)(8), discussions about easing these restrictions may bring relief to debtors struggling with education debt. Legislative developments in 2025 could make it easier to discharge student loan debt in bankruptcy.
Key Statutes to Know
Here are several key statutes that govern consumer bankruptcy:
- 11 U.S.C. § 109: Governs who may be a debtor and includes credit counseling requirements.
- 11 U.S.C. § 707(b): Contains the means test for determining eligibility for Chapter 7 bankruptcy.
- 11 U.S.C. § 523: Lists non-dischargeable debts, including taxes, student loans (unless undue hardship is proven), and domestic support obligations.
- 11 U.S.C. § 1325: Governs the confirmation of repayment plans in Chapter 13 bankruptcy.
Make Sure You Are Ready To File If You Need To
Filing for consumer bankruptcy in 2024 involves several critical requirements, including passing a means test, completing credit counseling, and submitting detailed financial documentation. While an attorney is not legally required, having one is crucial for navigating the complex process and protecting your rights.
Looking ahead to 2025, adjustments to the means test, potential updates to state exemptions, and student loan discharge rules are expected to evolve, bringing changes that could impact consumers considering bankruptcy. Keeping abreast of these updates is essential for anyone facing financial distress.
