Is Bankruptcy a State or Federal Filing?

Posted on behalf of Phillips Law Group on Mar 09, 2010 in Local

Millions of people and business entities file for bankruptcy protection every year in the United States, and many wonder how the process works. One of the most common questions those who are considering bankruptcy ask concerns whether the bankruptcy case is governed by state or by federal law. This is an important distinction for many reasons, as states and the federal districts have different procedures, different norms and different staffs and judges. In order to find out everything you need in regards to bankruptcy law, you should contact an Arizona bankruptcy lawyer for specific answers and guidance. In the meantime, below you'll find an overview of the issue of state versus federal law in bankruptcy filings.

Bankruptcy Falls Within Federal Jurisdiction

Almost every aspect of every bankruptcy case filed in the United States is governed by federal law. The United States Constitution explicitly states that bankruptcies will be overseen by the federal government, and there are many reasons for this reality. Most people conduct business, borrow money or make financial arrangements that cross state lines. Rather than having to spend time deciding on the proper venue for a bankruptcy case and coming to an answer regarding which state's laws should govern, the federal jurisdiction over bankruptcy cases makes this process much more efficient. In addition, when a bankruptcy case is closed and the debtor's debts are discharged, the effect of this discharge needs to be given full faith and effect in every state. Otherwise, debtors may have to move to enter a state judgment in several jurisdictions.

Exception - State Law Governs One Aspect of Bankruptcy Cases

However, there is one exception to this rule. This exception deals with exemptions that pertain to bankruptcy filings. Exemptions are basically amounts in value of certain types of property that the debtor cannot be forced to liquidate in order to meet the obligations owed to creditors. For instance, exemption levels are provided for such items as the debtor's home and tools of trade. The reason that exemptions exist is because the law does not want to leave debtors in a state of complete destitution when the bankruptcy case is over.

The federal government does have its own set of exemptions, but only 15 states and the District of Columbia use those guidelines. Every other state in the country has its own list of exemptions. These lists can vary from state to state both in regards to the types of property that can be exempt and in the amount of value in exempt property that can be allowed in a bankruptcy case. This is basically the only aspect of a bankruptcy case that is governed by the laws of different states.

If you would like to find out more about how all of this works and/or you'd like to put an end to your financial problems, contact an Arizona bankruptcy lawyer at Montano Arentz & Associates, PLLCtoday to schedule a free initial consultation.

 

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