Many consumers reach the point of no return with their bills and reluctantly decide to declare chapter 7 bankruptcy. Bankruptcy is a powerful legal action that puts an immediate stop to debt collection activities and may end up leaving the filer nearly debt-free afterward. When it comes to filing bankruptcy, it's a federal action that is highly influenced by the filer's state of residence. Read on and find out how a filer's state influences several areas of bankruptcy.
Are You Legally Domiciled?
You have to be a resident of the state in which you are filing for at least two years prior to filing. Some states, however, give filers a choice between their present state and their previous state, and it can be advantageous to find out which one is best for you by speaking to a bankruptcy lawyer. You should also consider the possibility that you live in a state that allows filers to choose between state or federal exemptions. More on exemptions below.
States Determine Exemptions
Exemptions are important to filers because they allow filers to keep their personal property like homes, vehicles, and more. Many filers already know that chapter 7 is a liquidation of assets. In most cases, filers have few assets and others are protected by exemptions. No one who files for bankruptcy should do so without knowing what they could lose as a result. Each state has vastly different approaches to exemptions, with some being very generous and some being very stingy. For example, one state might allow filers to keep a family home of any value, while others would only allow a few thousand dollars on the homestead.
States and Income
Another way states influence your bankruptcy filing is with income. Filers used to be able to file without regard to income, but a retooling of the bankruptcy codes has put barriers in place for high-income filers.
Now, filers have to have an income that is at or below the state median income level. Naturally, those in California will encounter a different median income from filers in Kentucky. If your income is too high, you must fill out an additional bankruptcy form known as the means test. This form allows filers to list debts that may be higher than usual. If your income is high, speak to your bankruptcy lawyer about means testing and how to compensate for your higher income.
Most filers are very interested in keeping their property and in the means test, so speak to a lawyer who offers bankruptcy attorney services about your case right away.
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