Bankruptcy Law

Bankruptcy law is federal law and every state follows the same set of statutes in bankruptcy. The exception to the rule is that each state has discretion regarding whether to use the federal exemptions delineated by Congress or make up its own set of exemptions for bankruptcy filings.  In Utah our government has opted not to follow the federal exemptions and we have created our own exemption statute.  The differences can be huge from one state to the next.  For example, in Utah each joint owner in a home has a $30,000 exemption against any equity in the home (so the most the exemption could be is $60,000).  On the other hand, there are states that have no limit on the exemption for the homestead, which means that even if they own their home 100% the equity is not available to creditors.  However, in Utah if you own your $500,000 home without any mortgage and you file for bankruptcy relief.  You can say Bye bye home!  (Of course they will make sure you get your $60,000 back).

There are several types of bankruptcy, but for the average person you only need to be familiar with Chapter 7 or Chapter 13 (unless you are a farmer then maybe you need to look at a Chapter 12).  In any event, the rules apply equally to everyone. If you make a certain amount of money annually you will have to file for a Chapter 13 repayment plan, if your income is under that standard then you are eligible for a total discharge of your unsecured debt, without paying into a plan.  You will have to provide your attorney 6 months of pay stubs to verify your annual earnings, plus your last two years tax returns to prove YTD income.  In addition, the Trustee will want to know if you received a tax return in the prior year because a portion of your next tax return may be part of your bankruptcy estate and subject to distribution to your creditors.