Chapter 7 bankruptcy may not as widely used as you may think

The Bankruptcy Abuse Prevention and Consumer Protection Act — BAPCPA — of 2005 cut off a significant number of Americans from pursuing Chapter 7. However, many people in Connecticut might be surprised to learn that not only do they still qualify for Chapter 7 bankruptcy, but that they could greatly benefit from filing. According to one expert, it is a vastly underused tool for dealing with debt.

A professor of economics who studies bankruptcy at an out-of-state university was initially surprised when she learned of the relatively low number of annual filings. In 2005, there were fewer than 500,000 people who filed for Chapter 7. However, this could be in part due to confusion about who qualifies as well as barriers to filing.

To file for Chapter 7, a person’s income must be less than that of the average median income for his or her state. This requirement already means that most people who pursue Chapter 7 are at an economic disadvantage, but this can be seen in other areas of filings. While most people associate getting tax refunds with shopping sprees, bankruptcy filings actually go up around that same period of time. This is likely because those who are in need of debt relief finally have access to funds to start the process.

While the BAPCPA wanted to curb supposed abuse of the bankruptcy process, it may have also made it harder for the average person in Connecticut to get the help so desperately needed. This does not mean it is impossible, though. For those who qualify, Chapter 7 bankruptcy provides essential debt relief that can help individuals rebuild their financial security.