You’ve recently moved, which state’s exemptions apply?
First of all, why is this important? Whether federal or state, the exemption laws vary in the amount of property they allow you to protect from creditors. Some states may allow you to protect $100,000 of equity in your home, others $40,000 or less. O.J. Simpson famously moved to Florida to take advantage of its absolute exemption for the homestead.
As the guardian of your assets, exemption laws are crucial to any personal bankruptcy filing. Indeed, since exempt property is sheilded from creditors, the availability of exemptions is usually key to the determination of whether to file bankruptcy in the first place. If the debtor has significant amounts of property that could potentially be lost in a chapter 7 liquidation, chapter 13 may be the answer. Even in a chapter 13 setting, the value of nonexempt property may determine the minimum that must be paid to unsecured creditors. All Denver bankruptcy lawyers can agree about the fundamental importance of the exemption laws, however, sometimes it can be tricky figuring out which state’s exemption laws apply.
When states have “opted out” of federal exemption standards and only allow citizens to use their own, choice of exemption law is decided by domicile or residence. The state exemption law that applies to a debtor is determined by the state in which the debtor’s domicile has been located for the 730 days (two years) immediately preceeding the filing. What if the debtor has lived in two different places in the past two years? For example, Colorado has experienced rapid growth in population by people drawn to its pleasant climate and strong economy.
If the debtor’s domicile has changed in the last two years, the determining factor for exemption law purposes will be where the debtor resided for the 180 day period preceding the two year period. In other words, we look back two years plus 180 days. Wherever the debtor spent the majority of this 180 day period will be his or her exemption state. The plot thickens when the debtor’s exemption state requires that a debtor be a resident to take advantage of its laws. Some states such as Colorado limit their exemption laws only to current residents (defined as someone who lived in Colorado longer than anywhere else in the actual 180 day period immediately preceeding the bankruptcy filing).
So what becomes of the debtor who lived in Colorado for 10 years but moved to North Carolina 1 year ago? Colorado and North Carolina are both opt out states, meaning federal exemptions are normally not available. Let’s run through the analysis. Since the debtor has not lived in North Carolina for the last two years, North Carolina exemption law is not applicable. We turn to the Colorado bankruptcy exemptions. But wait! Colorado law mandates residency in Colorado in order to claim its exemptions. The debtor will not qaulify for the protections of Georgia law because the Colorado legislature has limited the scope of Colorado exemptions to current residents only. Have we created the Yaser Arafat of bankruptcy debtors who has no protection from any state’s bankruptcy exemption laws? Thankfully, No. If the effect of this complicated residency scheme is to render the debtor ineligible to claim any exemptions, the debtor may elect to exempt property under the federal exemptions, even if the state of the debtor’s domicile is an opt out state.
Questions about bankruptcy? Consult a Denver bankruptcy attorney.