CHAPTER 7 –WHAT EXEMPTIONS MUST YOU USE-STATE OR FEDERAL

Before filing for bankruptcy one needs to determine what exemptions the client is entitled to. "Exemptions" are property of the bankruptcy estate which the debtor may "exempt" i.e. the creditors cannot take this property.

We need to know whether the client can use the Florida exemptions or must use another state’s exemptions or the federal exemptions. In order to do that we need to apply 11 U.S.C. 522 which states that one can exempt any property that is applicable at the place the debtor’s domicile has been located for the 730 days immediately preceding the date of the filing of the petition or, if the debtor’s domicile has not been located at a single state for such 730-day period, the place at which the debtor’s domicile was located 180 days immediately preceding the 730-day period or for a longer portion of such 180-day period than in any other place.

This can be somewhat confusing. For example what happens if the debtor, John, has lived in Florida for 190 days and prior to that he lived in Kentucky for 600 days and prior to that he lived in New York for one year. Because he has lived in Florida for more than 180 days he can file for bankruptcy in Florida (i.e. venue is in Florida). However what state’s exemption laws would apply? Because he lived in more than one state for the 730-day period immediately prior to filing we much look at what state he lived in for the 180 days before the 730 day period. He lived in Kentucky for 60 days of the 180 days prior to the 730-day period and in New York for 120 days of the 180 days prior to the 730-day period. Since he lived in New York for a longer portion of that 180 day period then New York exemption law would apply.

HOWEVER if we exam New York law we will find that in order to claim New York exemptions the person must be “domiciled” in New York. This means that he must intend New York to be his permanent home. However, in this case, John intends Florida to be his new home. Therefore we cannot use New York exemption law. What law do we use ? The answer is we must use the Federal Exemptions (11 U.S.C 522 (b)(3))

The bottom line is that a person who has lived in Florida for less than 730 days (i.e. 2 years) must use the Federal Exemptions if the other state’s exemptions require residency or domicile at the time of claiming those exemptions. This could pose a problem in some cases. For example in Florida your entire interest in the home you live in is exempt i.e. the creditors can’t take it. HOWEVER the Federal Exemptions only exempt, at the most, $20,200 of value in your home. Therefore if you have equity in your home of $100,000 then the creditors will be able to sell your home and take $79,800 of the equity. As you can see it is very important to determine whether the Florida exemptions apply.

This would apply to a “non-permanent resident alien” i.e. for example an alien who is in Florida on a student visa. If they have resided in Florida for more than 180 days they can file for bankruptcy in Florida however because they are not “domiciled” (i.e. intend Florida to be their home–remember that a prerequisite for asking for non-permanent status is that you intend to stay in the U.S. temporarily. Therefore a person who is in the United States on a Student Visa and files for bankruptcy MUST use the Federal Exemptions.

Finally, if our client is a United States Citizen or permanent resident and has lived in Florida for more than 730 days then our client MUST use the Florida exemptions i.e. he cannot use the Federal Exemptions except those allowed under 11 U.S.C. 522(d)(10).