Updates on Bankruptcy Laws and Procedures

Bankruptcy is a legal process that allows individuals or businesses to eliminate or restructure their debts when they are unable to pay them. It is designed to provide relief to those who are struggling financially and unable to meet their obligations. The laws and procedures surrounding bankruptcy are constantly evolving, and it is important for individuals and businesses to stay informed about these changes. In this article, we will provide an overview of current bankruptcy laws, discuss recent updates, and examine the impact of these changes on individuals and businesses.


Bankruptcy laws were first established in the United States in 1800, and have undergone numerous changes since then. The primary goal of bankruptcy laws is to give debtors a fresh start by allowing them to discharge their debts and start anew. However, these laws also aim to protect creditors’ rights by ensuring that they receive at least some payment from the debtor’s assets.

There are several types of bankruptcy, including Chapter 7, Chapter 11, and Chapter 13. Each chapter has its own set of rules and requirements, and the type of bankruptcy filed depends on the individual or business’s financial situation. For instance, Chapter 7 is known as liquidation bankruptcy and is available to individuals and businesses with little to no income. On the other hand, Chapter 11 is typically used by businesses to reorganize their debts, while Chapter 13 is commonly used by individuals to create a repayment plan for their debts.

Overview of Current Bankruptcy Laws

The current bankruptcy laws in the United States are codified in the Bankruptcy Code, which was last updated in 2005 with the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). This act brought significant changes to the bankruptcy system, including stricter eligibility requirements, increased filing fees, and mandatory credit counseling.

One of the most notable features of the current bankruptcy laws is the means test. This test determines whether an individual or business is eligible to file for Chapter 7 bankruptcy by comparing their income to the median income in their state. If the individual’s income is below the median, they are eligible to file for Chapter 7. However, if their income is above the median, they must pass a second portion of the means test that assesses their disposable income and expenses.

Additionally, the current laws also require individuals to complete credit counseling before filing for bankruptcy and attend financial management courses after their case is filed. These requirements aim to educate debtors about their financial situation and help them develop better money management skills to avoid future financial troubles.

Recent Updates to Bankruptcy Laws

Since the implementation of BAPCPA in 2005, there have been several updates to bankruptcy laws. In 2010, the Bankruptcy Technical Corrections Act was enacted, which brought some changes to the bankruptcy system, such as increasing the homestead exemption and allowing bankruptcy judges to modify mortgages on primary residences. The following year, the Bankruptcy Venue Reform Act clarified the rules regarding where a bankruptcy case can be filed, making it more difficult for individuals to file in states with more lenient laws.

In 2019, the Small Business Reorganization Act (SBRA) was signed into law, which created a new subchapter V under Chapter 11 specifically for small businesses with debts less than $2,725,625. This new subchapter aims to streamline the bankruptcy process for small businesses and reduce the costs associated with filing for Chapter 11.

Most recently, in March 2021, President Biden signed the American Rescue Plan Act (ARPA) into law, which provided additional relief to individuals and businesses affected by the COVID-19 pandemic. This act included provisions that extended certain bankruptcy protections until December 2022 for individuals and businesses who file for bankruptcy during the pandemic.

Changes in Bankruptcy Procedures

In addition to updates in bankruptcy laws, there have also been changes in bankruptcy procedures that impact both individuals and businesses. One significant change is the increase in online filing options, which have become more prevalent during the COVID-19 pandemic. This allows individuals to file for bankruptcy without having to physically go to a courthouse or meet with an attorney in person.

Another change in bankruptcy procedures is the use of electronic signatures and virtual court hearings. These changes have made the bankruptcy process more efficient and reduced the need for in-person interactions, making it easier for individuals and businesses to navigate the process.

Additionally, there has been a push for increased transparency in the bankruptcy system. The Public Access to Court Electronic Records (PACER) system was created to give the public access to bankruptcy case information, which was previously only available to attorneys and parties involved in the case. This allows for greater accountability and helps prevent fraudulent activity in the bankruptcy process.

Impact on Individuals and Businesses

The updates and changes in bankruptcy laws and procedures have had a significant impact on individuals and businesses. On one hand, the stricter eligibility requirements and mandatory credit counseling have made it more difficult for some individuals to file for bankruptcy. However, the creation of subchapter V under Chapter 11 and the extension of certain protections through ARPA have provided much-needed relief to those struggling financially during the pandemic.

For businesses, the SBRA has allowed for a streamlined bankruptcy process, making it easier and more cost-effective for small businesses to reorganize their debts. The increase in online filing options and virtual court hearings have also made it easier for businesses to navigate the bankruptcy process, especially during the pandemic when in-person interactions may not be possible.

However, some critics argue that the current bankruptcy system still has shortcomings and does not provide enough protection for debtors. For instance, student loan debt is generally not dischargeable in bankruptcy, leaving many individuals burdened with large amounts of debt even after filing for bankruptcy.

Conclusion and Future Outlook

In conclusion, bankruptcy laws and procedures are constantly evolving, and it is important for individuals and businesses to stay informed about these changes. The current laws, as codified in the Bankruptcy Code, have been in place since 2005 with updates and amendments made over the years. More recent updates, such as the SBRA and ARPA, have provided much-needed relief to individuals and businesses, especially during the pandemic.

As we look to the future, it is likely that there will continue to be updates and changes to bankruptcy laws and procedures, particularly as new issues arise, such as the impact of the COVID-19 pandemic on the economy. It is crucial for individuals and businesses to stay informed and seek legal counsel when considering bankruptcy as an option for financial relief.