The greatest changes to federal bankruptcy law occurred in 2005, when the law changed to make it harder to go through a liquidation bankruptcy and applicants were required to attend financial counseling. However, the bankruptcy code is regularly changed when the dollar amounts are adjusted to take inflation into account. In April of 2013, the bankruptcy code was modified to increase the dollar amounts cited in the code. This affects everything from the bankruptcy exemption to the means test limit; they were all increased by 6.3%, a figure derived from the Consumer Price Index or CPI.
For example, the federal homestead exemption increased to $22,975. The vehicle exemption increased to $3,675. The non-dischargeable limits for luxury goods bought in the 90 days before filing increased to $650, while the limit on credit card cash advances that cannot be discharged rose to $925 if taken out in the 70 days before filing for bankruptcy. The debt limit for Chapter 13 bankruptcy is increased to $1,149,525. Other exemptions and cost of living amounts were also increased by the CPI adjustment.
However, due to stagnating wages due to a high unemployment rate, the median state income used in the means test to determine if someone can seek liquidation bankruptcy has remained the same in many areas and has actually fallen in a few states. The Census Bureau found that in 2012, the median state income was $67,116. For a single person, the Chapter 7 median threshold is now $49,919 for cases filed after May 1, 2013. For two person households, the threshold is now $63,896. Three person households are eligible for Chapter 7 at $76,001 while four person households are eligible at $84,960. The limit is increased by another $7,500 for each additional member of the household. If you live in Hawaii and are considering bankruptcy, talk to us to determine your income relative to these limits, since alimony and child support payments can affect these income calculations.
The next automatic change to the federal bankruptcy code due to inflation will be in 2016. If for some reason the Great Recession drags on and we see deflation, the new 2013 brackets will remain unchanged.