Does Bankruptcy Fall Under Federal or State Jurisdiction?

Millions of people file for bankruptcy protection every year throughout the country, including Pennsylvania and New Jersey. Most filers do not understand how the process works. A common question that many potential filers ask is, “does bankruptcy vary state to state, or is it the same everywhere?” Bankruptcy is governed by federal law. Therefore, across the board, most bankruptcies are very similar. However, certain aspects are governed by state law, such as exemptions. Additionally, bankruptcy courts also have local rules and regulations. For example, there are procedural differences between the Eastern and Western Districts of Pennsylvania.

Nonetheless, the Bankruptcy Code is a federal law. This makes sense when you think about it. Businesses and individuals across the county file for bankruptcy every day, and they work with creditors across state lines. Additionally, when a discharge is entered, the order needs to be given full faith and credit in every state. If this was different, a debtor might be required to obtain state judgments in multiple states or jurisdictions. At Young, Marr & Associates, our experienced Philadelphia bankruptcy lawyers are familiar with the federal law and the local and state laws of Pennsylvania and New Jersey. To further understand the bankruptcy process, call (215) 701-6519 in Pennsylvania or (609) 755-3115 in New Jersey.

What is Federal Jurisdiction?

Jurisdiction refers to what court has the authority to hear a legal case and decide what happens. In the United States, two main court systems could have jurisdiction over a legal dispute. State courts include the individual state and municipal courts, including small claims court and family court. The Federal court system includes the United States Supreme Court, the Courts of Appeals, tax courts, and bankruptcy courts. Typically, a court will have jurisdiction over a case through personal or subject matter jurisdiction. For example, you would not file a car accident case in family court. However, a case that starts in state jurisdiction could move up to the federal level if the subject matter has national implications. Before filing your case, our knowledgeable Allentown bankruptcy lawyers will determine the appropriate court.

Exemption Exception – State Laws and Bankruptcy Cases

Bankruptcy courts are governed by federal law. This means that federal judges preside over cases and attorneys are required to follow the federal rules of procedure. In most cases, the court will be housed in a different building than other local courts.

One exception is that state law governs what exemptions could be used in a bankruptcy case. Exemptions are a set of laws that allow a bankruptcy debtor to protect their property from liquidation to pay their creditors. For example, under the federal exemptions, a homeowner is permitted to protect $25,150 of equity in their house. There are two types of bankruptcy exemptions available in a case: federal and state exemptions.

As stated above, the federal law has a set of exemptions available for some bankruptcy filers. Currently, only fifteen states and the District of Columbia utilize these exemptions. Every other state has its own set of exemptions. Some states, including Pennsylvania and New Jersey, allow a debtor to pick which set of exemptions they wish to use. However, a debtor must choose one or the other – you are not permitted to mix state and federal exemptions – even when it would benefit your case.

In most cases, the federal exemptions are more generous and afford debtors greater protections. However, there are times when a filer might need to use a state exemption. For example, under the federal exemptions, a homeowner is allowed to protect $25,150 of equity in their home. If a person does not have a mortgage or only has a small remaining balance, then the federal exemption will not protect their house. Pennsylvania has a “tenants in the entirety” exemption. Under this exemption, a creditor is not permitted to have a lien against a property that is jointly owned between spouses if only one spouse owes the debt. Therefore, if all your debt is only in your name and you own your home with your spouse as “tenants in the entirety,” you can exempt the entire property, even if there is no mortgage. Our experienced New Jersey bankruptcy attorneys will review your case to determine which set of exemptions will allow you to protect your property and assets.

Local Bankruptcy Rules

The Bankruptcy Code does not address every aspect of a bankruptcy filing. Therefore, under the Bankruptcy Code, each district court is permitted to amend or make rules governing the procedures and practices within the district bankruptcy court’s jurisdiction. These rules and regulations must be consistent with federal laws.

For example, if you file a Chapter 13 case to stop a mortgage foreclosure, your case would be handled differently in the Eastern District of Pennsylvania than it would in the Western District. To be more specific, if you filed in Philadelphia, you would continue to make your regular monthly mortgage payment directly to your lender. The money you are behind will be paid through your bankruptcy plan. Debtors in Pittsburg, or the other side of the state, would pay both their mortgage and the money they are behind through the bankruptcy plan. This is only one of the many small procedural rules and regulations that make each district slightly different. It is important to have one of our experienced Pennsylvania bankruptcy attorneys who are familiar with the local rules of the district where your case will be filed.

Call Our Pennsylvania or New Jersey Bankruptcy Attorneys for a Free Consultation

While bankruptcy is governed by federal law, your case will be impacted by various local rules and regulations. If you are considering filing for bankruptcy or just have some questions, call our experienced Bucks County bankruptcy lawyers at Young, Marr & Associates. Our New Jersey number is (609) 755-3115, while in Pennsylvania, you can reach us at (215) 701-6519.