Filing bankruptcy is not exactly an American pastime, but Chapter 7 bankruptcy filings rose sharply after the economic recession of 2008 as seen in the link. Countless people who either lost a job, suffered a foreclosure, or experienced medical emergencies found themselves faced with either a lifetime of attempted repayment or a good strong look at bankruptcy. Attorney’s who specialize in guiding consumers through the process of filing for bankruptcy saw a sharp increase in business over the last 5 years.
The downside of this trend of rising bankruptcy filings is the advent of what could be called unscrupulous lawyers. This is true of any industry of course, and the law profession is no exception. Due to new, misinformed, or downright greedy attorneys seeking bankruptcy business consumers are well advised to seek out a competent and experienced bankruptcy attorney to advise them, and this can be done by checking with organizations that rate bankruptcy attorney’s like BBB or AVVO.
It’s important to point out that not every state of our union has the same legal code when it comes to the treatment of consumer debt. While Federal bankruptcy code applies in all states and districts, the events that often lead (or shall we say drive) a consumer to file for bankruptcy don’t receive equal treatment. This article will give two examples.
Debt Events That Drive People to File for Bankruptcy
Wage Garnishment: Perhaps the biggest determinant in a consumer’s decision to file for bankruptcy is when credits move to garnish wages. Set aside the fear factor of receiving such correspondence, or the embarrassment they may face in human resources, the biggest concern will be their curtailed ability to meet their family’s financial obligations. The point of this discussion is related to individual state laws, and their impact on bankruptcy filings. Instead of covering multiple states we will focus on Texas, perhaps the most generous when it comes to debt collection practices. Take a look at these examples.
You cannot garnish wages in Texas because the constitution generously awards exemptions in several areas. While a debt collector may seek to garnish wages, any consumer who is well represented will soon discover its mostly an empty threat.
Creditor Judgments on Debts: Creditors may also file a judgment on a delinquent debt, but again Texas gives consumers much grace. A consumer’s primary residence is exempt from judgment creditors. A judgment will still make new purchases difficult, however for consumers already living in a home it becomes quite a safe haven for them.
Examples like this between states make it difficult to apply broad bankruptcy stats across all Americans due to the differences between state laws. This video perhaps illustrates the Texas example, and was provided courtesy of this Houston bankruptcy attorney: http://www.shawdefense.com/houston-bankruptcy-attorney
(Here is the cource for the above Houston bankruptcy attorney video. Most attorneys focus on traditional means tests to either determine if a Chapter 7 or Chapter 13 is the best fit for struggling consumers, and certainly not all bankruptcy lawyers will focus on the legal exceptions like Judge Shaw, but you can see how its imperative for each practitioner to fully understand the bankruptcy laws for their state.
Texas Not the Answer for Everyone:
While this example highlights state loopholes it isn’t a sure safe haven for everyone, especially when it comes to corporate bankruptcy filings. Texas based RadioShack recently filed for Chapter 11. This is due more to shareholder pressure than judgment creditors, and they badly needed to reorganize their balance sheet. Perhaps it’s good that they were indeed located in Texas however, as it likely helped them buy more time than had they been located in a stricter district such as New York.
We hope this article has been insightful in highlighting how federal laws such as bankruptcy find State level interpretation, not by way of State’s having more authority, but due to the protections that their constitutions extend to consumers in relationship to debt protection, judgment creditor limitations, and wage garnishment provisions.