Important Information About State Bankruptcy Laws

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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