Which State’s Bankruptcy Exemptions Are Used if I Moved?

The choice or applicability of a particular state’s Exemption laws depends on the ‘domicile’ of the debtor, i.e. where the debtor permanently resides.

The Bankruptcy Code outlines where the debtor is domiciled in cases where the debtor has recently moved.

These domicile rules were put in place to curb “forum selection shopping” or moving to a particular state to take advantage of a state’s more advantageous exemptions.

The question of domicile is done through a two-part test:

The 730 Day Rule – When the debtor has been continuously domiciled in a particular state for 730 days (2 years) before date that the bankruptcy case is filed, the Bankruptcy Code requires that the debtor use that state’s exemptions or the federal exemptions (if allowed).

The 180 Day Rule – Where a the debtor has not been domiciled in the same state for two years prior to the filing date of the case, then the debtor must use the exemptions of the state where he or she was domiciled for the greater portion of the six (6) months prior to the two year period preceding the filing of the bankruptcy case.

For example, a debtor lived in Ohio from January 1, 2012 through January 1, 2014, but then moved to Pennsylvania and was required or desired to file bankruptcy on January 1, 2015. Even though the debtor was then living in Pennsylvania for a full year, the debtor would be required to use the exemption laws of Ohio since he had not been domiciled in Pennsylvania for the full two-year period (the 730 Day Rule), and for the six months prior to the two years preceding the date of the bankruptcy filing, the debtor was domiciled in Ohio (July 1, 2012 through December 31, 2012). Also, federal bankruptcy reform has potentially altered the scope of a state’s “homestead”. exemption (the exemption for the house in which the debtors live).

Now, in order for a debtor to use a state’s homestead exemption, the debtor must have owned the home for at least 3 years and 4 months prior to the date of the filing of the bankruptcy case (note that if the debtor sold his home and used the proceeds from that sale to purchase a new house located within the same state, then the time the debtor owned the first home will be credited toward the 3 year and 4 month period). If the debtor does not meet this time requirement, the federal law caps the allowable homestead exemption at $160,375 effective April 1, 2016 (which is adjusted periodically), regardless of the debtor’s state exemption amount. Also, note that debtors cannot use the homestead exemption to protect rental property or a house that they do not use as a residence from creditors – the homestead exemption applies only to the debtor’s residence.

Standard Legal provides exemption information for each state, as well as the Federal Exemptions. The Bankruptcy legal forms software user can choose the appropriate state or federal exemption information and insert that information into his or her bankruptcy documents.

Please be advised that this information is not legal advice and should not be relied upon as such. The information in this e-mail should not be used in place of legal advice. The information above is simply a brief synopsis of what the bankruptcy code provides. Your unique situation may cause the rules set forth above to be inapplicable to your situation. If you have legal questions about jurisdiction, consult a qualified attorney.