Consumer Bankruptcy
Introduction
This page will include an overview of the means test and general eligibility requirements, along with a brief introduction into Chapter 7 and Chapter 13. The rest of this Research Guide will provide primary and secondary sources that are applicable to both Chapter 7 and Chapter 13 bankruptcy filings. It's likely that researchers and practitioners will carefully consider both chapters before narrowing their research, so the Research Guide is accordingly structured as a cohesive guide covering consumer bankruptcy.
Consumer bankruptcy is bankruptcy for individual debtors. While individuals can file under Chapter 7, Chapter 11, Chapter 12, and Chapter 13, consumer debtors usually seek relief under Chapter 7 or Chapter 13 of the U.S. Bankruptcy Code. Filing under Chapter 7 used to be the obvious choice for debtors with few assets and some future earning capacity. However, the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) made sweeping changes to all aspects of bankruptcy law, especially those affecting consumer debtors.
Eligibility
To be eligible under any chapter of the Bankruptcy Code, a debtor must satisfy the requirements of 11 U.S.C. § 109(a):
"Notwithstanding any other provision of this section, only a person that resides or has a domicile, a place of business, or property in the United States, or a municipality, may bee a debtor under this title."
The Bankruptcy Code also states that person "includes individual, partnership, and corporation, but does not include a governmental unit." 11 U.S.C. § 101(41). While the term "individual" is not defined, it means a natural person (i.e., a human being). For individual debtors, BAPCPA added a debtor pre-bankruptcy credit counseling requirement. See 11 U.S.C. § 109(h).
The Means Test
Under BAPCPA, individual consumer debtors with sufficient projected future repayment capacity are barred from proceeding under Chapter 7. See 11 U.S.C. § 707(b). Under BAPCPA, the old substantial abuse test of § 707(b) was replaced by a new "abuse" test. See 11 U.S.C. § 707(b)(1). The "means test" in § 707(b)(2)(A) outlines the level of excess income that constitutes a presumption of abuse. If there is a presumption of abuse, then dismissal of the Chapter 7 filing is mandated unless the debtor can prove "special circumstances" justifying the continuation of the Chapter 7 case. 11 U.S.C. § 707(b)(2)(B). Researchers and practitioners should pay special attention to the means test.
Additional Means Test Information
- U.S. Trustee's Office maintains a website that lists state median income, by family size, and the website is updated approximately every six months.
- All individual debtors filing under Chapter 7 must file Form B122A-2, which contains the means test calculation. This Research Guide also includes a link to other relevant forms here.
Chapter 7
Chapter 7 Overview
The most common type of bankruptcy case is a straight liquidation bankruptcy governed by Chapter 7 of the Bankruptcy Code. Consumer debtors often want to file under Chapter 7 (instead of Chapter 13) to receive an immediate discharge of their debts. In a Chapter 7 case, a bankruptcy trustee supervises the process of collecting the debtor's assets, liquidating those assets, returning exempt property, and making a distribution to creditors.
U.S. Code
Chapter 7 of the Bankruptcy Code (11 U.S.C. §§ 701–784) includes chapter-specific provisions for individual consumer debtors filing a straight liquidation under Chapter 7. The administrative and procedural chapters (Chapter 1, Chapter 3, and Chapter 5) also govern straight liquidations under Chapter 7.
Chapter 7 Resources
The Chapter 7 - Bankruptcy Basics provides an excellent starting point for researchers and practitioners. It includes background information, eligibility requirements, and alternatives to Chapter 7. It also explains how Chapter 7 works, and it explains the benefit of a Chapter 7 discharge. These practice notes and practical guidance pages are another excellent place to begin research:
Chapter 13
Chapter 13 Overview
For individuals with regular income and less than a certain amount of debt, Chapter 13 allows the adjustment of their debts through a repayment plan of three to five years. Under a Chapter 13, consumer debtors may be able to keep their property (e.g., a car) and re-negotiate payments to creditors. Under a Chapter 13, debtors will not receive a discharge unless and until they complete every payment on their plain within the designated time period.
U.S. Code
Chapter 13 of the Bankruptcy Code (11 U.S.C. §§ 1301–1330) includes chapter-specific provisions for individual consumer debtors filing a debt repayment plan under Chapter 13. The administrative and procedural chapters (Chapter 1, Chapter 3, and Chapter 5) also govern debt repayment plans under Chapter 13.
Chapter 13 Resources
The Chapter 13 - Bankruptcy Basics provides an excellent starting point for researchers and practitioners. It includes background information, eligibility requirements, and alternatives to Chapter 13. It also explains how Chapter 13 works, and it explains the benefit of a Chapter 13 reorganization plan and subsequent discharge. These practice notes and practical guidance pages are another excellent place to begin research: