Home Sweet Home: Where Should You File Your Bankruptcy?

28 August 2018
 Categories: , Blog

Chapter 7 bankruptcy is very good at providing filers with financial relief, and that relief can mean a lot of things. It might mean the complete elimination of debt, the cessation of bill collection activity, and being able to stave off foreclosure and repossessions. The bankruptcy codes underwent some changes a few years ago and the new rules deserve a look. Read on to learn more about some of these changes, including the residency rule.

Protecting the Creditors

Despite its name, the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCA) seems to provide creditors with more protection than consumers. While the act did put into place some rules that made bankruptcy more difficult for consumers, it is still possible for filers to get the relief they need when their financial situation gets tough. The abuse prevention measures now mean that consumers must comply with several rules about things like income levels, monthly budget considerations, and more. One new rule concerns residency requirements.

A Federal Matter But Controlled by the State

Filing for a chapter 7 bankruptcy involves using a unique blend of federal and state laws. While your bankruptcy is known as a "federal filing", each state has separate rules about some things. One of the main differences between the various states is the way exemptions are treated; an exemption is a way to reduce the value of something so that you can keep it.

For example, if you owned a home and its value was $300,000 but you owed $250,000 on your mortgage, the actual equity in the home is $50,000. Since you owe so much money on the home, the value of the home to the bankruptcy courts is about $50,000. If your particular state offers an exemption that is at least $50,000, then your home is safe from seizure. There are several other factors to take into consideration, such as how much debt you owe in total to all creditors.

Shopping for the Best Exemptions

Exemptions can be applied to both real estate (known as homestead exemptions) and other property. Some states have separate exemptions for vehicles, your home, and other personal property, and some just offer the homestead and personal property exemption. The more generous your state's exemptions the more likely it will be that you don't lose property to bankruptcy. Moving from state to state and "shopping" for the most attractive exemptions is no longer allowed. You must now be a resident of the state for at least 2 years prior to filing and using that state's exemptions.

Some states do allow filers to file using the rules of their previous state, and some allow filers to choose between federal and state exemptions, so speak to your bankruptcy attorney to learn more about this issue and how it applies to you. You can also contact attorneys like Charles J Schneider PC for more information.