Can you keep all of your possessions in bankruptcy? The answer depends on which chapter of the Bankruptcy Code you use to file your petition. There are four chapters in the Code under which individuals and legally married couples may file.
I. Chapter 7
The chapter most commonly used is Chapter 7, and its big goal is the discharge of debts without any repayment. Thus, while there are some kinds of debts that are not dischargeable in a Chapter 7 bankruptcy, for most debtors Chapter 7 provides a clean sweep of debt and gives a truly fresh start.
A. Exempt vs. Nonexempt Assets
One of the many things you are required to include in your Chapter 7 bankruptcy papers is a complete listing of everything you own – even down to the clothes on your body. Since in a Chapter 7 bankruptcy your creditors are, in effect, walking away like poor step-children, there must be limit on which of these possessions you get to keep. You are permitted to retain all of your “exempt” property, but the Chapter 7 trustee assigned to your case is empowered to seize your “non-exempt” assets and liquidate them for the benefit of your creditors.
B. The Exemption Tables
How can you tell which of your assets are exempt? While the Bankruptcy Code has an exemption table , it permits the states to use their own state exemption tables instead. Some states use the federal table exclusively, some states have completely opted out of the federal table and only allow debtors to use their own state table, and some states allow debtors to choose between the federal and their own state tables. Note, however, that you don’t get to mix and match: once you choose a table you have to stick with it.
In particular, California has two exemption tables: one for homeowners with equity, the other for renters and homeowners without equity. California permits the use of the federal table as well.
The tables are not all carbon copies of each other. Some state tables are more generous than others. Can you use any state’s table you want? No. Congress wanted to discourage “forum shopping” so it put restrictions on the use of the exemption tables. Therefore, you can’t simply move to another state and immediately use that state’s table.
C. Which Table Can I Use?: The Domicile Requirement
Bankruptcy law underwent a major sea-change in 2005 with the enactment of the Bankruptcy Abuse and Consumer Protection Act (“BAPCPA”). Under the pre-BAPCPA Code the debtor could indeed use the exemption table of the state in which the debtor lived the longest during the 180-day pre-petition period (see 11 U.S.C. § 522(b)(2)(A) of the pre-BAPCPA Code).
However, under BAPCPA things are quite a bit more complicated. They are described in the current version of 11 U.S.C. § 522(b)(3)(A).
The gist of § 522(b)(3)(A) is this: If you had your “domicile” in the same state for the entire 730-day (i.e., two 365-day years) pre-petition period, then you can use either that state’s exemption table (if the state has one – as I previously mentioned, not all of them do), or the federal table found in § 522 if the state allows it. If you have not lived in a single state for the entire 730-day pre-petition period, then you must use either the exemption table for the state in which you lived for the longest part of the 180-day period immediately prior to the 730-day pre-petition period, or the federal exemption table.
D. Does Intent To Be Domiciled Play A Role?
Suppose you physically inhabited Pennsylvania for at least part of the last 730 days. Can you still be thought of as having been domiciled in California for the last 730 days if your intent was to be domiciled in California? Or do you have to wait the full 730 days after your return to California to use the California tables? This is a crucial exemption question if you did not live in California for the longest part of the 180-day period immediately prior to the last 730 days.
It is perhaps a bit surprising that not much BAPCPA case law exists on the subject. Indeed, the only published BAPCPA cases in the entire country appear to be: In re Capps, 438 BR 668 (Bankr. D. Ida. 2010) and In re Urban, 361 B.R. 910 (Bankr. D. Montana 2007) (these are the only cases in the Ninth Circuit – of which California is a part – but neither is at the appellate level), In re Dufva, 388 BR 911, 914 (Bankr. W.D. Mo. 2008), In re Welton, 448 BR 76, 80 (Bankr. M.D. Fla. 2011), and In re Bunting, Case No. 07-20864 (Bankr. E.D. Mich. 2/27/2009).
All of these cases echo the pre-BAPCPA case law, which held that intent was key. For example, in one of its pre-BAPCPA decisions the United States Supreme Court distinguished the concepts of “domicile” and “residence” by holding:
“Domicile” is not necessarily synonymous with “residence,” Perri v. Kisselbach, 34 N. J. 84, 87, 167 A. 2d 377, 379 (1961), and one can reside in one place but be domiciled in another, District of Columbia v. Murphy, 314 U. S. 441 (1941); In re Estate of Jones, 192 Iowa 78, 80, 182 N. W. 227, 228 (1921). For adults, domicile is established by physical presence in a place in connection with a certain state of mind concerning one’s intent to remain there. Texas v. Florida, 306 U. S. 398, 424 (1939).
Mississippi Band of Choctaw Indians v. Holyfield, 490 U.S. 30, 48 (1989)(emphasis added).
Therefore, if intent still remains the operative measuring stick you might be able to use one of the California tables – even if you lived in Pennsylvania for part of the last 730 days – if you can convince the judge assigned to your case that your intent was to remain domiciled in California while you resided in Pennsylvania. In sum, it may come down to luck of the draw on judge and trustee assignment.
The safest move would, of course, be to wait the full 730 days before filing. However, some debtors do not have the luxury of being able to wait to file, perhaps due to a pending foreclosure sale or some other enraged 1,000-pound financial gorilla coming after them. If that is your situation, then the only thing to do is roll the dice and hope for a sympathetic judge who will accept your “intent to reside in California” argument.
II. Chapters 11, 12, And 13
If you file under chapters 11, 12, or 13 you commit to a multi-year debt repayment plan. Therefore, since you will be making payments over time, you are permitted to keep all of your possessions. However, you still are required to list all of your assets and divide them into the exempt and non-exempt categories because the dollar value of your non-exempt assets becomes the starting point for determining the size of your plan payments.