Which Bankruptcy Exemptions Can I Use?

Bankruptcy exemptions protect property from creditors and are established by federal law or state law. Some property is protected during a bankruptcy case by federal law exclusively, such as social security benefits. Other property may be protected by either federal bankruptcy exemptions or state law exemptions.

Federal bankruptcy exemptions are listed in the federal Bankruptcy Code and allow the debtor to protect a certain amount of equity in various assets, such as the homestead exemption, the automobile exemption, etc. Alaska, Arkansas, Connecticut, District of Columbia, Hawaii, Kentucky, Massachusetts, Michigan, Minnesota, New Hampshire, New Jersey, New Mexico, New York, Pennsylvania, Puerto Rico, Rhode Island, Texas, Vermont, Virgin Islands, Washington, and Wisconsin all allow bankruptcy debtors to use the federal exemptions contained in the Bankruptcy Code. The remaining states have “opted out” of the federal bankruptcy exemptions and instead choose its own set of exemptions. In some cases debtors have a choice of selecting a federal or state exemption.

Whether the debtor is able to choose a particular state’s exemption laws depends on the domicile of the debtor. The debtor’s domicile is where the debtor permanently resides. However, in an effort to curb “abuse,” the Bankruptcy Code decides where the debtor is domiciled when the debtor has recently moved through a two part test:

The 730 Day Rule: when the debtor has been continuously domiciled in a state for 730 days (2 years) before filing bankruptcy, the Bankruptcy Code states that the debtor applies that state’s exemptions or the federal exemptions (if allowed).

The 180 Day Rule: if the debtor was not domiciled in the same state for two years, then the debtor must use the exemptions of the state where he was domiciled for the greater portion of the 6 months prior to the two years preceding your bankruptcy. To illustrate, say you were domiciled in Texas from January 1, 2009 to January 1, 2011, and then moved to Nevada. On January 1, 2012, you file bankruptcy in Nevada. Even though you have lived in Nevada for twelve months, you must use the exemption laws of Texas. Why? Because you have not been domiciled in Nevada for a full two years (the 730 Day Rule), and for the six months prior to the two years preceding the bankruptcy filing you were domiciled in Texas (July 1, 2009 through December 31, 2009).

Bankruptcy rules are complex and are often not intuitive. Keeping your property is a matter of knowing the state and federal exemptions, as well as local court customs and how the law is applied in the appropriate jurisdiction. An experienced bankruptcy attorney can guide you through this complex process. Don’t trust your fresh start to just anyone. Get experienced and professional advice.