Is Bankruptcy of Federal or State Law? Ask a Bankruptcy Attorney
Many people today filing bankruptcy don’t even realize that bankruptcy is under federal jurisdiction. The U.S. Constitution required Congress to enact uniform bankruptcy laws. Even though bankruptcy is under federal law, it will vary from state to state. The core structure was created by Congress and administered by the US Bankruptcy Court, which is federal. Regardless of the code being federal in nature, every state will have its own provisions under the law. As an example, filing Chapter 7 bankruptcy requires an individual to now qualify under the means test. Basically, the means test looks back six months of one’s earnings and then divides it by six and multiplies it by 12 giving the individual their average annual income. To qualify, the individual filing bankruptcy will need to make less than the median income for their state. The federal government website has a median income table that is updated usually twice a year. So someone living in California making $50,000 a year will qualify to file Chapter 7 bankruptcy, while someone in Arizona will not qualify.
The areas of the bankruptcy law that differ more noticeably are in that of the bankruptcy exemption laws. The bankruptcy code has a standard federal exemption that one can use, but most people opt out and use the bankruptcy exemptions of their state. Depending on what state one resides in, exemptions can be very generous for some. Some states will allow an individual to protect anything to do with work, like their tools, while other states will have a limitation of a few thousand dollars. Rural areas will usually have special provisions for farm equipment and things associated with that. One of the most popular exemptions that many people have heard of is the homestead. Once again, the homestead exemption will vary from state to state and usually is tagged to property values. Some states like Texas, allow for an unlimited amount of equity on a home and some smaller states might be as low as $25,000.
Because of the complexity of the laws, it is important for the person filing bankruptcy to consult a bankruptcy attorney in their area. A local bankruptcy attorney will know the ins and outs of the bankruptcy code for their state and even down to the district where the individual files. Being represented by legal counsel allows the individual to go into the 341 meeting with confidence knowing that they are being protected to the extent of the law. It is legal and possible to file a do-it-yourself bankruptcy, but it’s not advisable, especially, since the major overhaul to the bankruptcy code in 2005. A bankruptcy attorney will know what’s expected of the bankruptcy court in that area and know what are acceptable bankruptcy exemptions to use. If someone was going to have surgery, they wouldn’t ask their neighbor to help them out, they would seek the help of a surgeon. Likewise with filing bankruptcy, to get the maximum benefits, one needs to be represented by professional legal counsel.