Experienced bankruptcy attorneys know how substantially bankruptcy rules and requirements can vary from state to state, including the available homestead exemptions, general exemptions, and the income and spending requirements to qualify for Chapter 7 bankruptcy under the means test. Due to these differences, some people may wonder whether they can move to a different state briefly in order to benefit from more lenient bankruptcy laws and exemptions. This is commonly called “forum shopping,” and is generally not a realistic notion due to the residency requirements for bankruptcy cases.
In 2005, Congress set out to reduce the potential abuse of bankruptcy laws by passing the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA).[1] Despite claiming they based the changes on “consumer protection,” the changes made by the Act are generally unfavorable for consumers and tend to favor businesses filing for bankruptcy instead. In addition to other restrictions for Chapter 7 eligibility, BAPCPA also set out stricter residency rules for certain aspects of bankruptcy cases.
Filing the Petition
The federal United States Bankruptcy Code[2] governs bankruptcy cases; therefore, you must file bankruptcy petitions in federal court. However, you must determine in which federal district court you must file your petition, which depends on where you live. BAPCPA did not alter the filing residency requirements for bankruptcy, which are as follows:
- Based on the majority of the past 180 days, (i.e., 91 days) you can file in any of the following districts:
- Where you lived
- Where you keep your primary assets
- The location of your principal place of business
Under this rule, imagine that you lived in New York for years and recently moved to Connecticut. 60 days after moving, you decide to file for bankruptcy. Because you lived in New York for 120 of the past 180 days, you would need to file in the proper New York district or wait longer to file your petition in Connecticut.
Where you file your petition dictates which means test threshold you can use to qualify for Chapter 7. BAPCPA amended the U.S. Bankruptcy Code[3] to require Chapter 7 filers to pass a means test based on the median income in each state. Since the median income varies widely from state to state, you may easily qualify for Chapter 7 bankruptcy in one state but not in another. If you may move to another state soon or very recently moved from a different state, you should discuss your options with a highly skilled bankruptcy lawyer who can advise of the implications of filing in each state.
Strict Residency Requirements for Applicable Exemptions
It is critical to understand that simply because you meet the residency requirement to file in a certain state does not automatically mean that state’s exemptions will apply to your case. This is because BAPCPA enacted[4] significantly stricter residency requirements for the specific purpose of exemptions. Congress intended this to limit the number of filers who moved to new states, waited more than 91 days, and then made use of more beneficial exemption allowances.
The law now bases your access to state exemptions on the location of your domicile for the 730 days (two years) prior to the date of your bankruptcy petition. Determining your legal domicile depends on many factors and not necessarily on your physical presence in a particular state. Instead, domicile exists where you have a permanent home to which you intend to return. Some factors that indicate domicile include where you:
- Own property
- Register to vote
- Register a vehicle and hold a driver’s license
- Primarily work
- Have your primary bank accounts
- Attend church
- Participate in community groups
- File taxes
- Send your children to school
Imagine you own a house in one state where you have deep ties to the community, and you rent an apartment in another state with more generous exemptions. You travel back and forth for two years and then file for bankruptcy in the more generous state. The court may find that you always intended to return to your original state and, therefore, that is your true domicile. You will then lose the benefits of the more generous exemptions.
Some people do not have a true continuous domicile for the two years prior to filing bankruptcy. In this situation, the court will look to your domicile for the 180 days (six months) prior to that two-year period. If your domicile is unclear for that period as well, you will not have access to the exemptions of any states and instead, will have to apply the federal exemptions.[5]
Considering available exemptions is critical prior to filing for Chapter 7 bankruptcy. Some states – like New York – allow you to choose between the state set of exemptions and the federal set of exemptions, while others limit you to state law. You should always discuss with a skilled bankruptcy attorney whether the exemptions available in your case will adequately protect your property and assets, including your home, car, financial accounts, inheritance, and more. If you have too much property that will be vulnerable to liquidation, you may want to discuss the possible pros and cons of filing for Chapter 13 bankruptcy instead of Chapter 7.
When BAPCPA made sweeping changes to consumer bankruptcy laws, it served as a reminder that bankruptcy restrictions and opportunities can be ever-changing. It is essential that you speak with a lawyer who stays fully apprised of all current requirements, means test threshold, exemption amounts, and more, so they can properly advise you of all possible implications of a bankruptcy case.
Consult with an Experienced Nassau County Bankruptcy Lawyer about Your Options Today
At the
Law Office of Ronald D. Weiss, we regularly see how bankruptcy can provide life-changing debt relief for our clients. We carefully evaluate your situation in order to provide the best possible advice regarding whether bankruptcy – and what type of bankruptcy – is right for you. With decades of experience handling Chapter 7, 11, and 13 bankruptcy cases throughout Suffolk County and Nassau County, you can trust you will receive the highest quality of legal assistance. Call 631-479-2455 or contact us online today.
