Is Filing For Bankruptcy Different For Different States?

The United States bankruptcy code is a set of federal laws that allow people overwhelmed with too much debt to get a "fresh start." The process for filing bankruptcy is the same whether you live in Alaska or Minnesota. However, there are a few state-specific differences regarding asset protection as well as how much money you can earn each year.

Chapter 7 falls closest to a total bankruptcy, though some types of debts such as child support and recent tax bills are ineligible for any type of bankruptcy assistance. To qualify for Chapter 7, you must earn no more than your state's annual median income level as determined by the United States Census Bureau. The figures vary widely according to your state of residence and household size. For example, a single Arkansas resident could earn up to $35,765 annually and still file Chapter 7 without special permission; the same person living in New Jersey could qualify for Chapter 7 earning as much as $59,906 per year. A family of four in Maryland could bring in up to $106,707 annually, while that same family in the U.S. Virgin Islands is limited to $41,918 per year. People who earn more money than the appropriate median income figures cannot file Chapter 7 unless they prove their inability to even partially repay creditors while covering basic living expenses. Otherwise, they must enter a Chapter 13 repayment plan or forego bankruptcy entirely.

States and U.S. territories have different asset exemption laws. Generally, if you have lived in one state for at least two years you can protect some of your property regardless of your bankruptcy status. If you have lived in your current state of residence for less than two years, you might need legal advice to determine which asset exemption laws you can invoke.

In California, you can protect anywhere from $75,000 to $175,000 in real estate equity depending on your age and disability status. On the other hand, Kentucky asset exemption laws cover only $5,000 in real estate equity. Oregon residents generally can retain up to $40,000 of real estate equity and $7,500 of bank deposit accounts regardless of their bankruptcy status. In every state, laws protect your general personal possessions as well as retirement accounts. People repaying debts under Chapter 13 are much less likely to encounter problems retaining assets such as a motor vehicle or a primary residence.

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