Local Variances in Bankruptcy Law
Since bankruptcy is provided by the federal government in the federal statutes, many people wonder why bankruptcy may work differently in different parts of the country. I hear the very logical questions: Bankruptcy is federal, shouldn’t the law be the same throughout the country? What difference should it make if I live in Chicago and someone else lives in New York, isn’t this federal law?
The answer is yes and no. The Bankruptcy Code is the federal law that creates bankruptcy, defines terms, and specifies how it works to a large degree. There are a few ways location makes a difference, however. First, there are many instances where state law and interpretation under courts of a state control the application of the bankruptcy laws to a person within the state. Also, every district court is authorized to implement the bankruptcy code via local rules and local rules can sometimes vary widely. Thus, the application of the law and the rules can be applied differently from one place to another. Finally, there are some locations where trustees are much more aggressive than in others.
One example is bankruptcy exemption law. “Exemptions” define what property can be protected from creditors. 11 U.S.C. Section 522 provides federal exemptions. Section 522 allows states to “opt out” of the federal exemption statutes if they choose. Most states have elected to “opt out.” This means that debtors that file cases within a state must use the state’s exemption statutes to protect property and can not use the federal exemptions. There are a few states where the debtor can choose either the federal exemptions or the state exemptions. In Illinois, for instance, debtors can only use state exemptions. Illinois is an “opt out” state. A single debtor in Illinois can only exempt $7,500 of equity for real estate she lives in from creditors. If the debtor were able to use federal exemptions as provided under 11 U.S.C. Section 522, she would have been able to protect $18,450 in equity!
Another example can be found in different local court rules. In the Northern District of Illinois, for instance, motions are handled differently than they are in the Northern District of Indiana. In Illinois, the moving party automatically schedules the date the motion is to be heard and the Notice of Motion would contain the actual hearing date. In the Northern District of Indiana, the moving party sends a general Notice of Motion giving the respondent a certain number of days to respond. If the respondent does not object to the motion within the time period, the moving parties’ order is automatically signed by the Judge with no need for anyone to appear at a court hearing.
There are many other examples of state and local law and practice changing the way bankruptcy cases work from one place to another. Don’t be fooled, location still matters, even when operating under “federal law.”
