Bankruptcy can offer Nebraskans a fresh financial start by helping them restructure their debt or by discharging, or erasing, some debts. Bankruptcy is governed primarily by federal laws. However, some state-specific rules apply to determine exempt property and qualifying income levels. All Nebraska bankruptcy cases must be filed with the United States Bankruptcy Court for the District of Nebraska which has offices in Lincoln and Omaha.
Nebraskans can file for personal bankruptcy under Chapter 7 of the Bankruptcy Code. Often referred to as liquidation bankruptcy, Chapter 7 involves a court-appointed trustee who takes control of the debtor's property that does not qualify for an exemption. The nonexempt assets are sold by the trustee to pay the filer’s debts. It is not uncommon for debtors to lack sufficient nonexempt property to cover their debts, and many filers have no such property. However, even if the trustee has nothing to sell, the court can grant a discharge for the petitioner, erasing many of the debtor's outstanding debts.
Not every debtor qualifies to file under Chapter 7 since federal law requires debtors to meet income guidelines. Nebraska debtors whose current monthly income, averaged over six months, is less than Nebraska’s median income can file under Chapter 7. For cases filed after May 1, 2013, the median income for one earner in the state is $41,861 per year, and this amount increases as the debtor’s family size increases. Debtors who make more than the median income level can still qualify to file under Chapter 7 if they pass a “means test” applied by the court. If the filer’s current monthly income, less certain expenses, is less than $11,725, the debtor can file under Chapter 7. If it is not less than $11,725, the debtor can still qualify if it is less than 25 percent of certain debts as long as that 25 percent is at least $7,025.
Though bankruptcy is governed by federal law, each state sets its own rules for what types of property are exempt from sale during a Chapter 7 case. Items that qualify for an exemption cannot be seized by the bankruptcy trustee and sold to pay creditors. However, unlike some other states, most of Nebraska's exemptions do not double if a married couple files for bankruptcy together. Nebraska filers must use Nebraska’s exemption list since Nebraska law specifically prohibits them from using the federal exemption list. Nebraska’s list includes exemptions for the filer’s home equity up to $60,000 in value if the home qualifies as a "homestead," meaning the filer lives there with his spouse, children or is over 65. Once the home qualifies as a homestead, it is protected even if the filer's spouse moves out. Nebraska also exempts many pensions and retirement accounts, clothing, up to $1,500 of household goods and up to $2,400 of professional supplies. Nebraska protects a certain percentage of a filer's wage, but this amount varies based on whether the filer is the head of a household. Though Nebraska does not have an exemption specifically for vehicles, vehicles used for business purposes can be included in the professional supplies exemption or in the "wildcard" exemption that allows filers to exempt up to $2,500 of personal property.
Nebraskans who do not qualify to file under Chapter 7 may still be able to qualify for bankruptcy by filing under Chapter 13, which requires the debtor to have a steady income. Chapter 13 allows a debtor to restructure his debts under a three- to five-year repayment plan. Once the court approves the plan, the debtor gives his disposable income—total income less necessary expenses—to his bankruptcy trustee who then uses the money to pay the debtor’s creditors in accordance with the repayment plan. At the end of the repayment period, the court can grant a discharge of many remaining debts.