This doesnt sound right. Find another lender.
On another note, is that combined income $240K because you would certainly be denied with a $240 income 😂🤣😆
Don't worry, you can get an HELOC no problem. You selected the wrong bank to work with.
1) Yes, it's legal. A bank can refuse service for any reason that doesn't violate federal laws.
2) Are those your mortgage scores or some other score? Most HELOCs are underwritten with your FICO 5/4/2s, the same as any mortgage.
If you don't have those and are guessing your scores based on your FICO8 or, worse a VantageScore or CK score, you may be WAY off.
3) If the stated reason was the BK, there may be other concerning factors such as your DTI or utilization on your credit cards. A lot of financial institutions look at risk and if you have really high balances (even with much higher corresponding limits), they may deny you based on the potential to run up the cards. On the other hand, if any part of any debt to this lender or their parent company was written off, you may be denied on internal disqualifications.
That said, all banks don't have the same overlays or requirements. If your middle mortgage scores are over 720, you'll likely have no problem getting a HELOC somewhere as long as you have the equity. Good luck.