Why We Need to Know Where You Have Lived the Last Two Years

Depending on where you lived two years ago, the bankruptcy laws vary by state and can therefore affect how much of your property will be protected.

Even though bankruptcy is a federal procedure, the laws change, state to state, on what you will be able to protect when you file bankruptcy. For example, with a Chapter 7 case, this can determine whether you have to surrender any of your property to the bankruptcy trustee. In a Chapter 13 case, this can help determine how much you need to pay your creditors when you create your payment plan.


Property Exemptions Vary By State

Even neighboring states can differ greatly in what they allow when it comes to property exemption. For example, let’s compare Alabama and Florida. They both require their residents to use their state property exemptions as opposed to the federal set of exemptions that are written in the bankruptcy code. Someone who has been living in Alabama must use the Alabama exemptions in his or her bankruptcy filings just as someone of Florida has to use the Florida exemptions.

The differences in the homestead exemptions between Florida and Alabama can vary so greatly. In Alabama, the homestead exemption amounts are very stingy and not as generous as other states. This would be $5,000 in value or equity ($10,000 for a couple). On the other hand, Florida has one of the most generous homestead exemptions that is unlimited value or equity. So if you live in Alabama and you own a house that is $150,000 free and clear and filed a Chapter 7 case, the Chapter 7 trustee would then take your home, sell it to pay off your creditors and give you $5,000. You might also get anything left over after the creditors are paid in full. In Florida, that same home would be completely protected, your trustee wouldn’t be allowed to touch it and your creditors wouldn’t see a dime from your home.

It should be worth noting that your homestead exemption is limited to a maximum of $156,675 if you acquired your present homestead within 1,215 (approximately 40 months) before filing bankruptcy and the equity did not come from a prior principal residence in the same state. Even if your state is more generous than this allows. This is the discourage people from moving to and buying a house in a state that has a high or unlimited exemption to shield their assets from bankruptcy.


Choosing Between State Exemptions

If you have lived in your current state for the last 730 days (approximately two years), then you will be subject to your current state’s property exemptions. If you have not lived in your state two years, you will be subject to the prior state’s property exemptions.

There are of course exceptions. If you have moved from another state to your current one in less than two years AND you filed bankruptcy before the 730 day period expires, then you must use the property exemptionsof the previous state. If you wait until after that 2-year mark expires, you will have to use the exemptions of your current state.

It is quite possible that your property would be protected by either state you are from or living in. The differences between Alabama and Florida are extreme to demonstrate our purposes. Most of the people whofile for bankruptcy DO NOT LOSE any of their property. So what you need to do if you have moved in the last two years and you are thinking about bankruptcy is talk to a bankruptcy attorney. Find out where your assets would be better protected. You certainly don’t want to find out too late that your property could have been better protected if you had started thinking about this a few months earlier.