Traditionally, when people think of a bankruptcy filing they think of having debts eliminated with little or no cost to them. In such tough economic times it seems as though Chapter 7 would be the most beneficial for those experiencing financial troubles. Although Chapter 7 bankruptcies are still fairly common, recent bankruptcy laws have made it more difficult to qualify. As a result the number of Chapter 13 cases has increased over recent years.
Changes In Bankruptcy Laws
In 2005, the bankruptcy laws underwent some changes that impacted the bankruptcy process. One of the most significant changes was made to the qualification criteria for filing a Chapter 7 case. Previously, a filer could qualify for Chapter 7 if their income was determined to be insufficient to repay their debts.
The new law requires that a filer pass a means test, which determines if the filers income is less than the median income of the state. Anyone who earns an income greater than the median income of the state is not be eligible for Chapter 7, but instead could file for Chapter 13 repayment plan.
Despite tough economic times, it is difficult for many people to qualify when they do have some, even a miniscule amount of, income to pay towards their debts. In other cases, many people simply choose Chapter 13 over Chapter 7 as a way to preserve the impact to their credit through satisfying their debt payments.