Chapter 7 Bankruptcy in the 50 States

One of the average debtor’s greatest fears is that they will lose all of their treasured possessions along with their home and car simply because their financial situation has led them to face the possibility of Chapter 7 bankruptcy. However, this is not the case.

In the United States, Federal law controls most of the laws dealing with any type of bankruptcy, the law of each state determines the procedure used in each of the different Federal Court Districts where each bankruptcy court is located, and most of the assets a debtor can keep.

Some states, Rhode Island, Arkansas, Connecticut, the District of Columbia, South Carolina, Hawaii, Massachusetts, Michigan, Texas, Vermont, Washington, Wisconsin, Minnesota, New Mexico, Pennsylvania, Kentucky, and New Jersey, allow a debtor to choose the federal or their own state’s exemptions when going through Chapter 7. However, all of the other states require that a debtor in Chapter 7 follow their own exemptions, with the interesting exception of California, which allows a debtor to choose between one of two exemption schemes.

All of these different state and federal schemes permit the same basic exemptions. They all allow a debtor to keep all or part of the equity in their home and car, provided the debtor confirms the loan or mortgage within 45 days after the statutory meeting with creditors. Every state also allows a debtor to keep all or part of their pension and social security along with other state and federal government benefits such as disability.

Many personal items, family heirlooms, and other necessities such as clothing can also be kept up to certain limits depending on the state. Some states have what is called a “wild card” provision where the debtor can choose to keep other items or additional equity in their home within limits. Many other states that do not have a “wild card” provision allow the debtor to take an extra exemption for their home, provided the debtor hasn’t used the exemption to keep their burial plot.

There are other exemptions permitted to the debtor facing Chapter 7 bankruptcy than are enumerated here. The basic idea behind all of the federal and state exemptions is to see that creditors are repaid as much as possible while making sure the debtor can recover. One thing all those considering bankruptcy Chapter 7 should remember is to contact an attorney in the state they live in.

For a more complete listing of the allowed exemptions, and for more information about Chapter 7 and Chapter 13, please visit http://www.ovlg.com/bankruptcy/ or call (800) 530-OVLG to speak to a customer service representative.