I just moved to a new state and I need to file for bankruptcy. Should I file for bankruptcy now or later? What kinds of things should I consider?
If you have moved to a new state, whether you should file for bankruptcy now or wait depends on:
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 Exemptions area.)
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.
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.
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.
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).
Example. Let’s assume you lived in California from January 1, 2002 through July 15, 2011. You moved to Texas permanently on July 16, 2011. It is now January 1, 2012 and you want to file for bankruptcy. If you decide to file now, you would have to use California exemptions because you were domiciled there for the relevant 180-day period prior to your bankruptcy (which is July 1, 2009 through December 31, 2009).
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 the federal bankruptcy 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.)
To learn more about when to file for bankruptcy, see the articles and Q&As in our Timing Your Bankruptcy topic.
Answered by: Baran Bulkat, Attorney