Compare Both States' Exemptions
When you file for bankruptcy, your goal is to exempt as much of your property as possible. This is because exemptions protect your assets in Chapter 7 bankruptcy and help you pay less to unsecured creditors in Chapter 13 bankruptcy. However, each state has a unique set of bankruptcy exemptions and different rules on whether you can use the federal bankruptcy exemptions instead of state exemptions. (For comprehensive information on how bankruptcy exemptions work and to find the exemptions in your state, see our Bankruptcy Exemptionsarea.)
If you can exempt all of your property with either state's exemption laws, when you file for bankruptcy doesn't matter for exemption planning purposes. However, if your new state's exemptions allow you to protect more of your assets, you may need to delay your bankruptcy to take advantage of that state's exemptions.
When Are You Eligible to Use Your New State's Exemptions?
Just because you moved to a new state doesn't mean that you are automatically entitled to use its bankruptcy exemptions. Whether you can use a state's exemptions depends on how long you have been domiciled (made it your permanent residence) in that state.
The 730-Day (2-year) Rule
Before you can use a state's bankruptcy exemptions, you must be continuously domiciled in that state for at least 730 days (2 years) prior to your bankruptcy filing date. Otherwise, the 180-day rule determines which state's exemptions you must use. As a result, if you recently moved to a new state and want to use that state's exemptions, you will typically need to delay filing your bankruptcy.
The 180-Day Rule
If you have not lived in your new state for at least two years, then you have to use the exemptions of the state where you were domiciled for most of the 180-day (6 month) period before the two years preceding your bankruptcy filing. So if you still want to use your old state's exemptions, this rule can help you as long as you file your bankruptcy within two years of moving (otherwise you will have to use your new state's exemptions).
What Happens If You Don't Qualify for Any State's Exemptions?
If you don't qualify to use any state's exemption system with the 730-day or the 180-day rule, then you are allowed to use thefederal bankruptcy exemptions.
Special Note Regarding Homestead Exemptions
If you want to take advantage of your new state's generous homestead exemption, you must satisfy an extra condition in addition to the domicile requirements above. In order to use a state's full homestead exemption, you must own your home in that state for at least 40 months prior to your bankruptcy. Otherwise, your homestead exemption is capped by federal law at $146,450 even if your new state's homestead exemption is larger and you are otherwise eligible to use its exemptions. (To learn more and to find the homestead exemption amounts in each of the 50 states plus D.C., see The Homestead Exemption in Bankruptcy.)