One question you might have is does Bankruptcy differ from state to state, and the answer is yes, but generally the difference is slight. Bankruptcy is largely governed by federal law, specifically in Title 11 of the United States Code (widely called the Bankruptcy Code). But Federal law gives way to state law in the determination of what assets you may exempt from creditors reach.
Before we delve too much further into state law, its useful to understand a little more about consumer bankruptcy. While there are several sections of the bankruptcy code (called “Chapters”) that individuals can file their petition under, there are two primary ones: Chapter 7 and Chapter 13. Filing under a specific Chapter means that your bankruptcy will be administered and guided according to the law outlined in that Chapter of the bankruptcy code.
Chapter 7 Bankruptcy
Chapter 7 of the bankruptcy code (11 U.S.C. 701 et seq.) provides the debtor the ability to file what practitioners call a “straight” or “no asset” (even though you may have some assets) bankruptcy. Generally, if you qualify to file under Chapter 7, it is the simplest and quickest way to discharge your debts and move on with your life. In simple terms, when a debtor files under Chapter 7, the Trustee will determine what assets the debtor has and will determine which ones are exempt from liquidation. This is where state law, and specifically West Virginia state law comes into play for most debtors.
Chapter 13 Bankruptcy
The alternative to a filing under Chapter 7, is filing under Chapter 13 of the bankruptcy code. Under Chapter 13, a debtor must pay back his secured creditors and at least something to his unsecured creditors. This is accomplished by a payment plan that lasts anywhere from 3 to 5 years.
Which Chapter Should I File Under?
Generally, almost any individual debtor can file for Chapter 13 bankruptcy (except in situations where the debtor has seriously sizeable debts). To file under Chapter 7 you have qualify. This qualification is known as the means test. Under the means test, if the individual debtor makes below the state specific median family income (adjusted for the debtor’s family size), then the law permits you to file under Chapter 7, but you may also file under Chapter 13. You get to choose. And of course it would seem to be an easy choice, Chapter 7 is quick, it’s easy, and you get to keep most of your stuff. But therein lies the issue: your stuff. What do you get to keep in a Chapter 7? This is where we look to West Virginia law to determine what you get to keep (or as we say “exempt”).
What Assets are Exempt in West Virginia?
West Virginia law provides that a debtor may exempt the following from the bankruptcy estate:
$25,000 in equity in a home (and if any portion of this is unused it can be applied to the catch-all);
$2,400 in a vehicle;
$8,000 in household goods, where no one item can exceed $400;
$1,000 in jewelry;
$800 in any property (known as the wildcard); and
$1,500 in any implements, professional books or tools of the trade of the debtor or the debtor’s dependent;
The debtor may also exempt: (1) any professionally prescribed heath aids for the debtor or their dependent; (2) the right to receive social security benefits, unemployment compensation, local public assistance benefit, veteran’s benefits, disability, illness, or unemployment benefit; (3) the vast majority of retirement accounts; and (4) the debtor’s right to receive or property from a crime victims reparation law, some life insurance proceeds, a personal injury award and future earnings award to the extent necessary for support of the debtor. See W. Va. Code 38-10-4. While this is not the entire list of exempt property, it hits most of the main points.
Importantly, if you have too many assets or too much equity in your assets such that you exceed the amounts above, you will have to pay at least this amount to your creditors. This can be accomplished in Chapter 7 by turning over the asset to be sold. If for instance, you have a car you own outright, worth $10,000, you could turn it over to the trustee who would then sell the car and give creditors $7,600 and return to you the $2,400 you would be entitled to under state law.
An alternative, if you don’t want to give away your assets, is to file under Chapter 13. Under Chapter 13, you get to keep your assets and the exemptions don’t matter (except again to say you have to pay at least the value of your non-exempt assets to creditors). Under Chapter 13, you make payments to the creditors and at the conclusion of the payment plan, your remaining unsecured debts are discharged. So, while it may not be clear why a debtor may choose Chapter 13, even though they qualify for Chapter 7, there are times when they may choose Chapter 13 over Chapter 7, albeit quite rarely.
The Means Test in West Virginia
Another important area where Bankruptcy differs from state to state is the means test. Specifically, the West Virginia state median family income. The Department of Justice, regularly puts out the state median family income, the most recent of which can be found here: https://www.justice.gov/ust/eo/bapcpa/20200501/bci_data/median_income_table.htm
In West Virginia, for cases filed on or after May 1, 2020, the Median Family Income for a household of one is $49,056 then, for a household of two $52,028, for three $64,281, for four its $76,273, and then add $9,000 for each additional household member.
Again, filing in any state is largely the same experience, but there is enough nuance and difference that you should consult with a local attorney.
Connect with us
Archives
Categories
Walters Law Firm WV is proud to be your trusted full-service law firm!