Use Exemptions to Protect Your Property in Bankruptcy

The scariest part of filing bankruptcy is losing property that one should not have lost. It doesn’t happen often or to many people, but everyone needs to know how to protect property. Everyone who files bankruptcy gets to exempt a certain amount of stuff, but not everyone gets to use the same exemptions. Debtors must choose between state or federal exemptions to shield that stuff from the bankruptcy court. But which exemption does one use? Well, that depends on the interaction between a number of complicated federal and state laws.

The US Bankruptcy Code, at 11 U.S.C. 522, requires an examination whether debtor was domiciled in the filing state within the last 730 days. Domicile is a legal term that looks to the place where a person calls home. If the debtor was domiciled for the past 730 days in the filing state, then debtor can use the laws of the filing state or federal law if the filing state allows the use of federal exemptions. Some states do allow use of federal exemptions, some do not. Do you know which ones do and which ones don’t?  

If debtor was not domiciled in the filing state during those 730 days, then one must look at the last 731 to 910 days. Finally bankruptcy law requires homeowners to look at home ownership during the last 1215 days to determine how much value can be protected in a house [that serves as one’s principal residence]. If this already sounds complicated, it is, so don’t expect an amateur to come up with the right answer. But this is just a start.

The law of each state and territory can affect the outcome if the debtor no longer resides in the state whose exemption laws are used. And the exemptions might not cover property that is not located in that state. This analysis applies to every case, even a case that debtor thinks is simple. If the correct exemption is not claimed, the property can be taken and sold to pay creditors. An experience bankruptcy attorney will know how to determine which exemptions apply. Before you file bankruptcy, make sure your property is protected by the correct exemption.