Does Bankruptcy Fall Under State or Federal Law?

Does Bankruptcy Fall Under State or Federal Law?

Most people in don’t realize that bankruptcy is under federal jurisdiction until they are in the middle of the proceedings.  The Constitution dictates that Congress must enact uniform bankruptcy laws.  Despite being under Federal jurisdiction the process will vary from state to state.  However, the basics of bankruptcy laws were created by Congress and administered by the US Bankruptcy Court which happens to be federal.

Provisions Under State Law & the Means Test

Every state will have their own interpretations under the law despite the code originating with the federal government.  Here is an example, if you want to file Chapter 7 you will now have to qualify under the means test.  Here’s how the means test works, they will take the last six months of your earnings, divide it by 6 to get your monthly income.  Then your monthly income is multiplied by 12 to calculate your annual earnings.  Now to qualify under the means test you must make less than the median income for your state.  For example if you make $50,000 per year and you live in California you will qualify, but if you live in Arizona you won’t.

Exemption Laws

Another area that differs greatly is when it comes to bankruptcy exemption laws.  There is a standard federal exemption that you can use, or you can opt out and use the exemption laws in your state.  In some states you are allowed to protect things you need for work, such as tools but other states will only allow an exemption of a few thousand dollars.

If you live in a rural area there are exemptions for farm equipment and claiming your home as a homestead is one of the more popular exemptions.  Homestead exemptions still vary greatly from state to state.  Homestead exemptions are typically attached to property values.  States like Texas allow for an unlimited amount of equity in a home whereas smaller states will cap the equity and $25,000.  Here is a video explaining the details of exemptions.

Working With an Attorney

Bankruptcy law is fairly complex and if you’re filing bankruptcy you should work with an attorney that specializes in bankruptcy law.  They know the ins and outs of the statutes in your state where you file.  It gives you the opportunity to go through the process knowing that you’re being protected.

Yes it is possible to file bankruptcy on your own, but much like divorce it isn’t in your best interest to do so.  In 2005 there was an overhaul to the bankruptcy code and your information may be old and out of date.  An attorney keeps up to date on all changes in the law and is in the best position to protect your interests.

Saving Assets and Income During Bankruptcy

Saving Assets and Income During Bankruptcy

When you file bankruptcy you want to keep as many of your income and assets as you are legally able to.  Some of your assets don’t need to be given to the creditors or the trustee to pay off your debts.  Some of your assets can be saved simply because they are covered under Bankruptcy Law while others can be saved when arrangements are made.  Here are some of the more commonly asked questions when someone is going through bankruptcy and wondering which assets they will be permitted to keep.

Can I Keep my Home?

Yes, if you have filed a Chapter 13 bankruptcy and you have put together a reorganization play, saving your home is entirely possible.  There are some requirements however, you must continue to make the monthly payments and submit a proposal to pay back the arrears in the next 3-5 years.   There are times when you can renegotiate the loan by extending the terms or lowering interest.

The creditor will look at several different factors including, your equity, the remaining balance, and the length of payments left.  There are personal exemptions in the home such as if it is jointly owned then both may be their exemptions to the calculations.  A good bankruptcy attorney will be able to help you go through all the paperwork and negotiations.

Can I Keep my Car?

Yes, if you agree to continue with the monthly payments and agree to pay the balance on arrears within a 3-5 year period.  If you have filed Chapter 7 bankruptcy, if you have a reaffirmation agreement, you also have the ability to use your personal exemption towards your vehicle.  On top of the exemption if there is any unused part of the homestead allowance that can be applied as well.

Can I Keep my Personal Belongings?

Yes, similarly to the way you can use exemptions to keep your car, you can use those tools to hang on to things like furniture or jewelry.  However the rules to the exemption will be slightly different.

Can I Keep my Tools for Work?

Yes, there are a couple of ways you can do this, the Chapter 13 reorganization plan, the Chapter 7 reaffirmation agreement or you can still use your personal exemption to save your tools.  Like your car you also have the option of using the leftover portion of the homestead exemption.

When it comes to your sources of income, some like your social security benefits are untouchable as they are protected under the Federal Bankruptcy Law.  However other sources such as disability or unemployment benefits may not be protected.  This is why it is so important to work with a bankruptcy attorney.