What Are Exemptions?
State exemption laws are designed to protect certain items of property from execution by judgment creditors or the Bankruptcy Court if a debtor files for protection under the Bankruptcy Code. The law has its genesis in the English Common Law which did not allow for creditors to take a debtor’s clothing. This law was not necessarily designed to protect debtors, but to avoid breaches of the peace caused by naked debtors wandering the streets.
The California Constitution requires the state legislature to provide an exemption scheme to protect individuals from the “extreme consequences of economic misfortune “[California Constitution Article 20, § 1.5]. Accordingly, California has a statutory scheme whereby debtors are allowed to protect certain items of their possession to assist them in their “fresh start.”
The California legislature has enacted a dual system whereby a debtor can choose one of two sets of exemptions. The selection of which set of exemptions to use should be done with the help of a Bankruptcy attorney. However, a debtor cannot use exemptions from each set of exemptions. They must opt for one set or the other and the set of exemptions used will generally depend upon the nature and extent of a debtor’s assets.
The Bankruptcy Code provides that, to be eligible to claim a particular state’s exemptions, a debtor must reside in that state for 2 years preceding the bankruptcy filing. If they did not reside in any one state for that period, then the laws of the state in which they resided during the 180-day period before the 2-year period applies (or during a longer portion of the 180-day period than in any other place). If this sounds confusing, it is. Courts and attorneys around the country are struggling deal with the interpretation of these new code provisions.
Do Bankruptcies Differ From State To State?
Absolutely, and it is interesting to note that five states have unlimited homestead exemptions, which means any house someone lived in would be protected from creditors up to any amount, including in Texas and Florida. California opted out of the federal exemptions and has two sets of its own. If a state did not opt out, they have to go with the exemptions allowed in the federal bankruptcy code, although a lot of states do not do that.
California has certain defined amounts, while some states like Nevada have $540,000 as its homestead exemption amount, whereas Tennessee has a $14-15,000 exemption amount; it does vary greatly from state to state.
What Is The 730 Day Rule and How Does It Apply In These Cases?
The Bankruptcy Code provides that, to be eligible to claim a particular state’s exemptions, a debtor must reside in that state for 2 years preceding the bankruptcy filing. If they did not reside in any one state for that period, then the laws of the state in which they resided during the 180-day period before the 2-year period applies (or during a longer portion of the 180-day period than in any other place). If this sounds confusing, it is. Courts and attorneys around the country are struggling deal with the interpretation of these new code provisions.
They further said that, if someone wants bigger homestead, like in Texas and Florida, they would have to be there for about 3-and-a-half years, instead of just two years, to make it difficult for people to shop for homesteads.
Which set of exemptions and which state’s exemptions someone is entitled to has become a very complicated analysis because there is a lot more to it, although this is a highlight.
