Updated: April 2, 2019
If you’ve lived in several states and want to file for bankruptcy, you’re right to wonder which set of exemptions you’ll use—especially since some states have generous exemptions while others are more meager. The answer will depend on where your “domicile” was before the bankruptcy.
Each state has a bankruptcy exemption system that determines how much property you can protect in bankruptcy. In Chapter 7 bankruptcy, exemptions let you protect property from your creditors. In Chapter 13 bankruptcy, exemptions help determine the amount you’ll pay to creditors in your repayment plan (you get to keep all of your property, but you have to pay for anything that isn’t covered by an exemption).
Find out more about the two most common types of bankruptcy.
Your domicile is the place you consider your permanent residence. It’s usually where you’re registered to vote, pay taxes, and intend to make your permanent home. Although it’s likely where you currently live, it isn’t always the case. For instance, if you normally live in California, but you’re temporarily located in Texas for a work assignment, your domicile is still California.
If you’ve been domiciled in your current state for the 730-day (two-year) period before filing for bankruptcy, then you can use that state’s exemption system (or the federal exemptions if that state allows you to choose between the two). The rule ensures that people don’t temporarily move to another state just to file bankruptcy and take advantage of that state’s more generous exemptions. But if you haven’t been domiciled in the same state for two years, then you’ll use the 180-day rule to determine your state exemptions.
People who weren’t domiciled in the same location for the two years before filing bankruptcy must use the exemptions of the state they were domiciled in for the better part of the 180 days before the two-year period. For instance, if you filed for bankruptcy on January 1, 2018, and you didn’t have the same domicile for the preceding two year period, then you’d look to your domicile during July 1, 2015, through December 31, 2015, and use that state’s exemptions.
Sometimes the rules result in not being eligible for any state’s exemption system. In that case, you’d use the exemptions under the federal system. This could happen if a state required you to be domiciled there or be a current resident before using their exemptions, or if you weren’t domiciled in the United States during the periods in question.
If you can’t satisfy the 730-day rule and your domicile state under the 180-day rule won’t allow you to use its exemptions because you don’t live there anymore, you can use the federal bankruptcy exemptions.
Many states have homestead exemptions you can use to exempt and protect the equity in your home. Some states have very generous or unlimited homestead exemptions. However, if you haven’t owned your home in that state for 40 months before filing the bankruptcy, federal law will limit your state’s homestead exemption to $170,350 even if you otherwise qualify to use that state’s exemptions. (This amount is current for cases filed between April 1, 2019, and March 31, 2022.) If, however, you sold a home and used the proceeds to buy a new home in the same state, you can combine the ownership time of both homes to satisfy the 40-month rule.
Learn more in Your Home in Bankruptcy: The Homestead Exemption.