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How To Protect Your Property In Bankruptcy

by on 1/23/2013

Just because you file for bankruptcy does not mean you will lose everything you own. When the bankruptcy rules were created, it was understood that for the rules to accomplish the purpose of a “fresh start” the creditors could not be allowed to take everything from you. You needed to be allowed to keep some of your assets to help you move forward with your fresh start.  Having no debt, but also no money, no vehicle, and nowhere to live was hardly a "fresh start.”

Keep your money as an exemption in bankruptcy.Keep your car as an exemption in bankruptcy.Keep your house as an exemption in bankruptcy.

To protect your property you need to know which exemptions to use, which is where it can get tricky. The federal rules [11 U.S.C. 522] have a list of exemptions, however, most often your state will also have a list of exemptions, which do not always allow the use of the federal exemptions. While the federal exemptions are the same regardless of the state you live in, the state exemptions vary from state to state.  If your state precludes the federal exemptions you must use the state exemptions. This is one of many reasons why an experienced bankruptcy attorney can be invaluable to your fresh start.

The first step you need to take is to determine which exemptions apply to your situation, as delineated in 11 USC 522(b)(3). You must determine where you have been domiciled for the 730 days immediately prior to your bankruptcy filing. Domicile has a legal meaning – “the state in which a person has his/her permanent residence or intends to make his/her residence, as compared to where the person is living temporarily. Domicile depends on intent, location of a home where a person regularly sleeps and some conduct.”  Sorry, lawyers probably wrote that, as it is not really as clear as you might hope.

If you were domiciled in more than one state during the prior 730 days, then you look to the 180 days prior to the 730 days. Whichever state you were domiciled in for the majority of the 180 days is the state for which the exemption laws will apply.

Example: If you are going to file your case on June 1, 2013 then 730 days prior would be the period of time from June 1, 2011 to May 31, 2013. For this example, you were domiciled in the following states:

California, from January 1, 2013 – Current

Arizona, from April 1, 2011 – December 31, 2012

Nevada, from January 1, 2010 – March 31, 2011

During the 730 days prior to filing (6/1/2011 – 5/31/2013) you lived in California and Arizona; therefore, since you were domiciled in more than one state, the 730 day period does not matter.  We therefore look to the 180 days prior, which would be December 2, 2010 – May 31, 2011.

During the 180 day period you lived in Nevada from 12/2/2010 – 3/31/2011 (120 days) and in Arizona from 4/1/2011 – 5/31/2011 (60 days).  Since you were in Nevada for the greater portion of the 180 days the Nevada state law exemptions are the appropriate exemptions, where you would need to look first.

Knowing which state to look to is only the first step. Next you need to determine whether the state has opted in or out of the federal exemptions; then you need to determine whether you are permitted to still use that state’s exemptions if you are currently not domiciled in that state; and lastly if the state has their own exemptions and allow federal exemptions, or like California having two of their own exemption schemes, you need to determine which exemptions help you the most. This, again, is why paying for a bankruptcy attorney to advise and represent you in this process will probably save you headache, stress and money in the end.

Contact one of our offices to schedule a free consultation and get the help you need to start planning your exemptions.