Should I File Bankruptcy Now After Moving to a New State?

Compare Both States' Exemptions

When you file for bankruptcy, you aim to exempt as much of your property as possible using bankruptcy exemptions to protect your assets. Almost every state has a unique set of bankruptcy exemptions and rules regarding whether you can use the federal bankruptcy exemptions instead of your state's bankruptcy exemptions.

It's important to know whether you can exempt all property in bankruptcy and what will happen if you can't. You'll lose property you can't protect with an exemption in Chapter 7, and you'll pay the value nonexempt property in Chapter 13.

When Are You Eligible to Use Your New State's Exemptions?

Moving to a new state doesn't automatically grant you the right to use its bankruptcy exemptions. Whether you can use a state's exemptions depends on how long you have been "domiciled" as a permanent resident.

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 before 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 resided in your new state for a minimum of two years, you must apply the exemptions from the state where you were domiciled for most of the 180 days prior to the two years leading up to your bankruptcy filing. Therefore, if you still wish to utilize your previous state's exemptions, this rule can assist you, provided you file your bankruptcy within two years of relocating; otherwise, you will need to use your new state's exemptions.

Example. Let's assume you lived in California from January 1, 2002, through July 15, 2022. You moved to Texas permanently on July 16, 2022. It is now January 1, 2023, and you want to file for bankruptcy. If you decide to file now, you must use California exemptions because you were domiciled there for most of the 180 days before your bankruptcy, or from July 1, 2022, through December 31, 2022.

What Happens If You Don't Qualify for Any State's Exemptions?

You can use the federal bankruptcy exemptions if you do not qualify for any state's exemption system under the 730-day or 180-day rule.

Special Note Regarding Homestead Exemptions

A homestead exemption protects equity in a residence. Because it's often a filer's most valuable possession, it's essential to fully understand the rules that apply to homes after moving between states.

To take advantage of your new state's generous homestead exemption, you must satisfy the domicile requirements above and another condition. You must own your home in that state for at least 40 months before bankruptcy. Otherwise, your homestead exemption is capped by federal law at $214,000. Using a homestead exemption is also precluded when a filer engages in certain felonious or fraudulent acts. (11 USC §§ 522(p), (q).)

This rule applies even when your new state's homestead exemption is greater, and you're otherwise eligible to use its exemptions. The amount adjusts every three years, with the next adjustment occurring on April 1, 2028.

Learn more about timing your bankruptcy case.