Exemption laws are crucial to any personal bankruptcy filing. Indeed, 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 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 created their own, choice of exemption law is decided by domicile. 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, North Carolina has experienced rapid growth in population by people drawn to its pleasant climate and strong economy. For the new North Carolina resident formerly of Florida whose exemption laws apply?
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 the 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 Goergia limit their exemption laws to domiciliaries (defined as someone who lived in Goergia longer than anywhere else in the 180 day period preceeding the bankruptcy filing).
So what becomes of the debtor who lived in Goergia for 10 years but moved to North Carolina 1 year ago? 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 Goergia bankruptcy exemptions. But wait! Goergia law mandates residency in Goergia in order to claim its exemptions. Have we created the Yasir Arafat of bankruptcy debtors? No protection from any 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.
Charlotte bankruptcy lawyer John O'Connor contributing. With offices serving Winston-Salem, High Point, Greensboro and Charlotte, North Carolina, The O'Connor Law Firm specializes in consumer bankruptcy as well as real estate finance issues.
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