The amount of property you can protect in a Chapter 7 bankruptcy and what you must pay certain creditors in a Chapter 13 are both determined by the exemptions you claim in your case. But different sets of exemptions exist under federal and state law, and which set you are allowed to use depends on your state. Read on to learn more about the different exemption systems and which one you can use in your bankruptcy.
(To see our full list of articles about bankruptcy exemptions, visit our Bankruptcy Exemptions area.)
The Federal Bankruptcy Exemptions
These exemptions exist under the federal bankruptcy code so their amounts do not vary from state to state. The federal bankruptcy exemptions allow you to protect a certain amount of equity in your various assets. The most commonly used federal exemptions include the homestead exemption which is used towards the equity in your home, the automobile exemption, and the wildcard exemption that can be used to exempt any type of property. However, there are also many other federal exemptions specifically designed to protect your other assets ranging from retirement accounts to jewelry. For more information on how much you can exempt under the federal exemptions, see The Federal Bankruptcy Exemptions.
In addition to the federal bankruptcy exemptions, each state has its own set of exemptions. For the most part, these are similar to the federal exemptions but the exemption amounts differ from state to state. Some states have very generous exemptions while others do not offer much protection for your assets. So it is important to check your state’s exemption laws prior to filing bankruptcy. (For links to articles on exemptions in each of the 50 states, see our Bankruptcy Exemptions area.)
Which Exemption System Can I Use?
The answer depends on the laws of the state where you reside (called your "domicile" in bankruptcy law). Most states prohibit their residents from taking advantage of the federal bankruptcy exemptions. If you live in one of these states, you must use your state’s exemptions. However, some states allow their residents to use either the state exemptions or the federal exemptions. If you live in one of these states, you must choose one system or the other (you cannot mix and match from the federal and state exemptions).
The following states currently give you a choice between the state exemptions and the federal system: Alaska, Arkansas, Connecticut, District of Columbia, Hawaii, Kentucky, Massachusetts, Michigan, Minnesota, New Hampshire, New Jersey, New Mexico, New York, Pennsylvania, Rhode Island, Texas, Vermont, Washington, and Wisconsin.
Where Is My Domicile?
Your domicile is where you make your permanent home (where you pay taxes, vote, and intend to remain and live). So if you normally reside in Oregon but you are currently living in Florida because of a temporary work assignment, your domicile is in Oregon.
The 730-Day Rule
If you have been continuously domiciled in a state for 730 days (2 years) before filing bankruptcy, you can use that state’s exemptions or the federal exemptions if allowed by that state. If this is not the case, then you must use the 180-day rule to determine which exemptions you can use.
The 180-Day Rule
If you were not domiciled in the same state for two years, then you have to use the exemptions of the state where you were domiciled for the longer portion of the 180 day (6 month) period prior to the two years preceding your bankruptcy. For example, let’s say you were domiciled in Oregon from January 1, 2007 to January 1, 2009 and then you made a permanent move to Florida. On January 1, 2010, you file a bankruptcy in Florida. Even though you live in Florida, you will need to use the exemption laws of Oregon because you have not been domiciled in Florida for two years and your domicile was in Oregon for the effective 180-day period (July 1, 2007 through December 31, 2007).
What if I Am Not Eligible to Use Any State’s Exemptions?
If you don’t qualify to use any state’s exemptions under the above rules, then you can use the federal bankruptcy exemptions.