In this previous post, we discussed where you can file a Bankruptcy case if you are planning on moving or have recently moved. The second very important question is what state’s exemptions will apply after a move. These exemptions vary widely from state to state. In order to discourage people from moving to a new state to get better exemptions, Bankruptcy law provides that regardless of where the case is filed, you must have lived in the state for 730 days (or two years) to use that state’s exemptions. If you have not lived in a state for 2 years, the Court looks to the exemption laws of the state in which you spent most of the six month period before the 730 day period began. Yes, it can get complicated, but in short, they look at where you lived the longest between two and two and a half years ago.
Let’s look at some examples. Joe lives in Georgia, and has a lot of debt from a failed business and lawsuits, but owns his house free and clear. He would like to protect as much as possible if he has to file for Bankruptcy, so he plans on selling his Georgia home and buying another one in Florida. Since he could only protect $21,500 in equity in his house in Georgia, and Florida allows an exemption for all equity in a homestead, Joe believes he could save his house and equity by moving. The problem Joe runs into is that while he could file a Bankruptcy case in Florida after three months, he has to wait two years before he can use Florida exemptions. Joe may be able to wait, but two years is a long time to avoid judgments and collection efforts so Joe may have to file earlier without getting the favorable exemptions.
Another example is Rob and Suzanne. They are doing reasonably well financially and move to Florida for a better job opportunity. They put a sizable down payment from savings on a house and things go well for a few months. However, four months after the move Suzanne is in a serious accident and loses her job. After a year, their savings is gone and they have gone in debt for medical bills and other expenses. Their house will be foreclosed upon the next month, they will lose their significant equity, and they need to file for Bankruptcy to stop it. Rob and Suzanne face the same problem as Joe, even though they had no financial problems and no intent to avoid creditors when they moved to Florida.
While Rob and Suzanne had no reason to plan for a Bankruptcy case, which is true for many people, if you are in financial difficulty and have moved recently, or especially if you are planning on moving, make sure you see a good Bankruptcy lawyer to discuss the filing of a case and the exemptions that apply. Bankruptcy lawyers and Judges are used to applying exemptions from other states when necessary, but this is one of many pitfalls for the unwary person who does not plan.