When you file a Chapter 7 Bankruptcy or a Chapter 13 Bankruptcy all of your assets become property of the bankruptcy estate. You may then protect your property by claiming the correct exemptions. Doing so will keep your property from being taken in a Chapter 7 Bankruptcy and will make your payment lower in a Chapter 13 Bankruptcy.
But which exemptions do you use? Bankruptcy is a federal law and Congress has created Federal Bankruptcy Exemptions (see 11 U.S.C. §522). However, Congress has also allowed states to opt out of the federal exemptions and create their own. If states create their own exemptions, they may allow residents to pick either federal or state exemptions or may require that they only use state exemptions. Missouri is one such state (see RsMO 513.427).
Exemptions can vary widely state to state. Property that would be non-exempt in one state may be entirely protected in another. To keep Debtors from exemption shopping, Congress provided the 730 day rule in 11 U.S.C. § 522. This rules guides which exemptions a Debtor is allowed to utilize. It looks at your principal residence for the past 730 days. If your residence for the entire 730 days prior to filing was in the same state in which you are filing, then you will utilize the exemptions allowed by that state. However, if you have lived in more than one state during the 730 days, a new test is used. This new test requires an examination of the your principal residence for the 180 days prior to the 730 day period we earlier discussed. Wherever you resided for the majority of that 180 days will guide your use of exemptions. Confused? Here are a few examples to help.
Example 1: Debtor, a resident of Missouri, files Chapter 7 Bankruptcy on August 1, 2014. Between August 1, 2012 and August 1, 2014, Debtor resided in Missouri. Debtor will utilize exemptions allowed under Missouri law.
Example 2: Debtor, a resident of Missouri files Chapter 7 Bankruptcy on August 1, 2014. Debtor moved to Missouri from Florida on August 1, 2013 and has resided in Florida since birth. In this example, the Debtor lived in two states between August 1, 2012 and August 1, 2014. We must now look at Debtor’s residence from February 1, 2012 to August 1, 2012. Debtor lived in Florida during this time period, and must use the exemptions allowed under Florida law.
To further complicate the issue, some states will not allow to utilize their exemptions if you are not a resident of that state at the time your bankruptcy is filed. Pursuant to the “savings clause” in 11 U.S.C. you will permitted to use the federal exemptions to protect your property.
The correct utilization of exemptions is one of the most important aspects of filing bankruptcy. As you can see, the law surrounding exemptions is very complex. You should meet with an experienced bankruptcy attorney to discuss exemptions and ensure your property is protected.