Bankruptcy Exemptions: Which State Exemption System Can You Use?
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Determining which state bankruptcy exemptions you can use if you file for Chapter 7 or Chapter 13 bankruptcy is a key component of your bankruptcy filing. Bankruptcy exemptions determine what property you keep (in Chapter 7 bankruptcy) or how much you pay to certain creditors through your bankruptcy plan (in Chapter 13 bankruptcy). (To learn more about bankruptcy exemptions, see Bankruptcy Exemptions – What Do I Keep When I File for Bankruptcy?)
Which state bankruptcy exemption system you may use depends on where you have been “domiciled” for a certain period of time. For this reason, the rules are sometimes referred to as “domicile requirements.”
What is Your “Domicile”?
For purposes of bankruptcy law, your “domicile” is where you make your permanent home. That means, where you get mail, vote, and pay taxes. Your domicile might be different from where you are living at the moment. For example, if your home is in Texas but you are temporarily living in Massachusetts because of military duty or a work project, your domicile would be Texas, not Massachusetts.
Domicile Rules for Bankruptcy Exemptions
Here are the rules:
- If your domicile (defined as where you make your permanent home) has been in your current state for at least two years, use that state’s exemptions (or the federal exemptions if allowed in that state).
- If you have been domiciled in a state for more than 91 days but less than two years, use the exemptions of the state where you were domiciled for the better part of the 180-day period prior to the two-year period before you filed for bankruptcy.
- If you have been domiciled in a state for less than 91 days, first figure out where to file for bankruptcy (where you file may be different from which exemptions you can use). File in the state you lived in previously. Or, wait until you have lived in your current state for 91 days, then file in that state. Then, use the rule above to figure out what exemptions to use.
- If your filing state allows you to choose between the state and federal bankruptcy exemptions, you can use the federal bankruptcy exemptions regardless of how long you have been domiciled in that state.
- If, when you apply these rules, you cannot use any state’s exemption system, you can use the federal exemptions (even if it is not otherwise available in the state where you file).
The Homestead Exemption: Special Domicile Rules
The homestead exemption has a special rule. If you acquired a home in your domicile state within 40 months before filing for bankruptcy, your homestead exemption is capped at $146,150. This cap does not apply if you bought the home with proceeds from the sale of another home within the same state.