Important Information About State Bankruptcy Laws

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Bankruptcy is governed by federal law but certain elements of your case will be impacted by laws in your state. Before you begin researching the state specific laws, here is some important information about interpreting that law so that you can understand it clearly.

State Bankruptcy Exemptions Cover Equity

One of the most important state specific laws you'll want to be aware of is your states set of bankruptcy exemptions. Bankruptcy exemptions protect your property from creditors in Chapter 7 bankruptcy, and they play a big role in determining how much of your unsecured debt must be repaid if you get into a Chapter 13 bankruptcy plan.

When you look at the dollar values of your states bankruptcy exemptions, remember that these values correspond to the equity you have in that property, not the value of the property itself.

An Illustration Using the Homestead Exemption

As an example, if you own a home in Delaware and you're married, then the applicable homestead exemption is $50,000. What if your home is worth $500,000? It doesn't matter. What matters is how much equity you have in the property. If your outstanding mortgage on that house is $450,000 or more, you're protected 100%.

Another Illustration Using the Automotive Exemption

The other valuable piece of property most people have is a car. These days, it’s not uncommon to own an expensive car and have it financed. If that is the case for you, then the automotive exemption in your state corresponds to the difference between the value of your car and the amount remaining on the loan.

For example imagine your car is worth $20,000. If your car note is $20,000 or more you’ve got nothing to worry about. If your car note is $15,000, then the automotive exemption in your state must be $5,000 or more to protect your equity 100%.

Your States Median Income

Median Incomes

 .

 

FAMILY SIZE

STATE

1 EARNER

2 PEOPLE

3 PEOPLE

4 PEOPLE *

 

 

 

 

 

Alabama

$38,642

$46,900

$52,460

$64,016

Alaska

$51,950

$75,460

$81,447

$85,964

Arizona

$42,603

$55,404

$59,659

$67,113

Arkansas

$32,834

$44,081

$49,599

$54,401

California

$48,009

$62,970

$68,670

$78,869

Colorado

$48,598

$64,679

$70,861

$83,976

Connecticut

$57,863

$71,961

$83,655

$103,314

Delaware

$48,415

$62,432

$68,518

$85,305

District of Columbia

$48,822

$80,172

$80,172

$80,172

Florida

$40,029

$50,130

$54,594

$65,135

Georgia

$39,384

$52,024

$56,682

$69,239

Hawaii

$50,664

$64,179

$75,670

$86,587

Idaho

$39,050

$48,648

$55,453

$61,480

Illinois

$46,355

$60,073

$69,910

$81,097

Indiana

$40,135

$51,104

$59,028

$69,226

Iowa

$40,456

$56,036

$63,510

$75,569

Kansas

$41,654

$57,174

$64,863

$69,272

Kentucky

$37,606

$45,081

$51,883

$63,768

Louisiana

$38,108

$46,704

$55,699

$67,239

Maine

$39,497

$51,600

$59,050

$68,466

Maryland

$55,774

$74,493

$87,152

$103,361

Massachusetts

$55,049

$68,243

$83,736

$102,110

Michigan

$42,562

$50,738

$60,161

$71,758

Minnesota

$45,760

$61,690

$74,082

$85,146

Mississippi

$32,658

$41,579

$47,058

$55,711

Missouri

$39,332

$51,120

$58,610

$69,832

Montana

$38,577

$52,412

$56,265

$67,921

Nebraska

$38,915

$54,124

$65,486

$71,097

Nevada

$43,041

$57,541

$60,783

$70,509

New Hampshire

$51,460

$63,534

$82,465

$89,990

New Jersey

$59,060

$70,680

$85,573

$101,106

New Mexico

$37,274

$51,855

$52,303

$53,709

New York

$46,295

$57,777

$68,396

$83,942

North Carolina

$37,781

$50,630

$55,468

$67,578

North Dakota

$41,443

$56,411

$69,328

$79,637

Ohio

$40,749

$51,319

$60,247

$72,625

Oklahoma

$36,884

$49,711

$54,135

$64,037

Oregon

$44,707

$55,553

$60,523

$72,767

Pennsylvania

$44,897

$53,706

$67,113

$79,916

Rhode Island

$46,136

$58,511

$72,184

$88,593

South Carolina

$37,055

$50,500

$52,738

$63,074

South Dakota

$35,582

$53,443

$58,794

$68,016

Tennessee

$38,144

$47,194

$53,227

$63,217

Texas

$38,294

$55,178

$56,445

$65,477

Utah

$50,635

$56,126

$61,944

$69,834

Vermont

$43,042

$57,948

$65,829

$78,392

Virginia

$50,296

$63,613

$73,260

$86,990

Washington

$49,930

$63,224

$72,524

$82,602

West Virginia

$39,750

$42,607

$51,350

$60,280

Wisconsin

$41,150

$56,080

$66,256

$77,438

Wyoming

$46,172

$60,829

$69,677

$76,361

Add $7,500 for each person over 4.
Source: U.S.Department of Justice

Click Image for Example

The other important state specific issue that will come up in bankruptcy is the amount of money your household earns compared to the median household income in your state. If you earn more than your states median income (click the image to the right to see median income amounts), you may not qualify to file for Chapter 7 bankruptcy.

The new bankruptcy laws of 2005 included a concept called the “Presumption of Abuse”. This concept essentially means that if you earn more than your states median income, you are “presumed” to be abusing the bankruptcy system. This concept was driven into legislation largely by credit card company lobbyists who argued that debtors were unfairly using bankruptcy to discharge debts that they could in fact repay.

If you are “presumed” to be abusive, you will need to overcome that presumption by taking the “means test”, which is a lengthy series of questions designed to evaluate your income versus your debt to find out if you could repay some of your debts through a Chapter 13 repayment plan.

Get Informed

Now that you understand how to interpret the laws in your state and how they apply to your case, go back to Bankruptcy Filings in Your State and get informed on your case specifics.

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