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Are There Residency Requirements When Filing for Bankruptcy Protection?

With the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) in 2005, new requirements were ushered in for bankruptcy filers. One of those new requirements pertains to residency. BAPCPA requires a debtor filing for bankruptcy protection to be a state resident for at least 730 days (two years) prior to being able to file a Chapter 7 liquidation or Chapter 13 reorganization case.

What Is the Significance of Residency to Bankruptcy Filing?

Why the big deal over where a debtor lives if bankruptcy is governed by federal law? Like most things, it all comes down to money, specifically state-specific exemptions for real and personal property, such as homes, vehicles, and accounts that debtors can retain regardless of the bankruptcy filing.

Each state has its own set of exemptions that go into effect in a bankruptcy filing. In the majority of states, you are required to use that state’s exemptions. That said, 17 states and the District of Columbia allow the debtor to make an election between the offered state-specific exemptions and congressional exemptions created at the federal level. And leave it to California to have two possible sets of state exemptions for debtors to choose between.

A debtor must choose one complete set of exemptions – state or federal – and not mix or match components from each system. But debtors that elect state exemptions are also entitled to utilize a small selection of additional federal exemptions that function as a type of exemption-system “layering.”

How Did BAPCPA Change Residency Requirements for Bankruptcy Debtors?

The BAPCPA now requires that a debtor reside for two years in a particular state before claiming advantages of that state’s specific exemptions in bankruptcy. If a debtor has lived in more than one state during that two-year period, BAPCPA mandates that the state where the debtor lived for 180 days prior to the start of the two-year period, or for the greater portion of that 180-day period, governs the amount of state exemptions. Effectively, exemptions are governed by the laws of the state in which the debtor lived longer than in any other.

Why Did Congress Include a Residency Component to BAPCPA?

Congress passed the residency requirement in BAPCPA to deter abusive practices by debtors. The congressional objective was to deter filers from engaging in forum shopping or moving from one state to another in search of the most bankruptcy-friendly legislation. Experienced debtors were moving to a neighboring state with more advantageous state-specific exemptions to preserve larger amounts of their property from the reach of creditors and trustees in bankruptcy.

If you or someone you know has questions about bankruptcy law and federal or state-specific exemptions, it is prudent to consult a bankruptcy attorney.