Residency Requirements for Exemptions

The value of exemptions varies considerably among the states. Hence, debtors who were going to file for bankruptcy would often move to the state with the most generous exemptions for the property that they owned. The new bankruptcy law passed in 2005 has made venue shopping much more difficult.

To use the exemptions of a state in a Chapter 7 bankruptcy, the filer must satisfy the residency requirements specified in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). Hence, the exemptions available to the bankruptcy petitioner depend on the bankruptcy filing date and where and for how long the petitioner has lived in the 2 ½ years before the filing date.

Determining the Applicable State

If you live in a state that allows the choice of the federal bankruptcy exemptions, then you can choose the federal bankruptcy exemption without regard to how long you were living in the state.

730-day rule. If you have lived in a state for at least 730 calendar days continuously (2 years) previous to the filing of bankruptcy, you can use that state's exemptions or the federal options if the state allows it.

180-day rule. If you did not live in your current state continuously for at least 730 days, then you must pick the state in which you lived most of the time during the 180 days previous to the 730 days. In other words, the state that must be selected is where you lived most of the time between 2 and 2½ years before filing.

Default rule. If no state qualifies using the above rules or if the 180-day state requires a current residency or domiciliary to use its exemptions, then the petitioner must use the federal exemptions. The default rule will only apply if you did not live in any state during the 180 day period that began 730 days before filing, or if the state requires a current residency or domiciliary.

State Residence or Domiciliary Requirements

Some states do not have residency or domiciliary requirements to use their exemptions, but many do. So after determining the applicable state, you must next determine if you are a resident or domiciliary of the state. You can have several residences but only 1 domicile, which is your legal residence. Your domicile is considered your main residence, where you pay taxes and vote, and where you intend to remain. Some states require residency to use their exemptions and some require that your domicile be in that state. If the applicable state law requires that you be either a resident or domicile to use their exemptions, then you cannot use them if you do not qualify. Hence, you will have to use the federal exemptions.

One thing to consider with exemptions is whether the homestead exemption, which is the exemption for your home, is applicable only to property located within the applicable state. If this is the case, you may want to choose the federal exemptions if they are available and if you own a home in your current state. Otherwise, the homestead exemption will not be available to you if you are required to use the exemptions of another state in which you are no longer a resident. Also, there are special rules for the homestead exemption.