Differences in State Bankruptcy Laws

Some creditors have offices all across America, and this makes a debt as mobile as computerized data. Recently a Florida resident, for example, deposited money in a bank that happened to have offices in California. Unfortunately, there was a judgment against this man in California, and the California bank allowed a seizure against the Florida bank account.

As our technologies and financial systems become ever more entwined, it is getting difficult to make any one state’s laws work for you, even when they should. For anyone who has the freedom to plan far enough ahead, choosing a tax-friendly, consumer-oriented, best-for-bankruptcy state could be a great advantage.

One little known fact about bankruptcy is that eligibility to file is not based on United States citizenship. In fact, the bankruptcy code allows not only citizens but also anyone who is domiciled, doing business, residing in, or owns property in the U.S. to file for bankruptcy. This is in part because filing takes place in federal court, not state court.

So why does it matter in which state you reside? Because bankruptcy courts apply much of the state’s own property laws in making judgments. While this currently is changing, there still is reason to search for an attorney or counselor who is knowledge about your state’s bankruptcy laws.

Sometimes even being on the right side of a state line still is no protection for managing a debt through bankruptcy. There are so many conflicting laws between states that it may be more expensive to fight a debt than to give in, in some cases. However, this should not be the case, and there are ways to protect your assets from mega-businesses. As a first step, you can avoid banking with interstate banks, especially when the bank is headquartered in a location where court judgments can create liens against your accounts.

When it comes to understanding bankruptcy laws, you must use the knowledge of applicable state laws to get the best results. Many paralegal programs and bankruptcy programs available over the internet just do not provide all the necessary information. Search out an experienced, competent attorney or counselor in your local area.

The location of your property has much to do with where you should file for bankruptcy. If you own homes in more than one state, it is possible to pick the state in which you will file. In there is a move in progress, you may have to file in the state from which you are moving. Legal advice is essential to anyone thinking of changing their residence if bankruptcy is involved. Allegations of escaping creditors can cause very serious problems.

A new federal bankruptcy law has tried to stop people from moving to states where they get more benefits from filing bankruptcy. The new rule sets a two-year residency standard to file in a state. Besides, even if you were to file in State A while your real estate is located in State B, most bankruptcy courts probably would use the laws of State B, anyway.

Finally, it is worthwhile to look at the state-by-state rates of bankruptcy. The results for the ten most common (creditor friendly) and the ten least common (debtor friendly) filings indicate the need for bankruptcy in many states. For example, states that are debtor friendly have lower rates, while those that are creditor friendly have higher rates. States that allow more shielding of assets from creditors do not have to use bankruptcy as often.

*Rates of bankruptcy are per 100,000 residents.

Creditor Friendly

700 Missouri

690 Indiana

670 Nevada

620 Utah

610 Oklahoma

580 Oregon

560 Idaho

540 Kentucky

540 Ohio

530 West Virginia

Debtor Friendly

160 South Carolina

190 Texas

200 Alaska

200 North Carolina

230 Massachusetts

240 Delaware

250 Vermont

270 New Hampshire

280 Connecticut

290 New York