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Matters Of State: How Your State Of Residence Influences Bankruptcy

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Did you know that the state you reside in can totally change your bankruptcy experience? Your legal state of residence (known as your domicile) affects several issues even though you declare bankruptcy using the federal court system. Read on to find out more.

State Exemptions

Almost all states choose to put forth their own set of exemptions for filers to follow. If you are not familiar with exemptions, they are extremely important for filers who want to keep as much personal property as possible. An exemption is a dollar figure or even an asset that does not have to be counted. Since chapter 7 allows bankruptcy trustees to seize property, every dollar counts. For example, some states let you keep a lot of jewelry and some give you several thousand dollars of value in the family homestead.

Another interesting issue about exemptions is that a few states give you only federal exemptions, some give you only state exemptions, and some allow filers to choose between the two. Furthermore, if you've recently moved, you might have another choice to make.

When You're New to the State

Just in case your situation would be better served by the exemptions in your previous state, you might be able to use those exemptions. If you've lived in the state for less than two years (at the time of filing), you can use the exemptions of your previous state. If you've already been living in the state for at least two years, you have to go with your current state of domicile. What this means is that before you file, if you have recently changed states, take a close look at the dates you moved when deciding when to file. Just waiting a bit could either make your exemption situation better or worse because state exemptions vary wildly.

What is Meant By Domicile?

For those that move around a lot, things can get confusing and you have to know what your legal domicile is before you file bankruptcy. A domicile is meant to be more or less than your permanent address. If you are visiting a friend for the summer, that friend's state is not your domicile. If you have been assigned to work at an alternate location for work, that is not necessarily your legal domicile. When it comes down to it, use the following to double-check for domicile – keeping in mind that you can have only one domicile at a time.

  • Where do you get your mail?
  • Are you registered to vote there?
  • Do you have a state driver's license?
  • Do you own real estate there?
  • Are you filing state taxes there?

Be sure to discuss this issue with a bankruptcy law attorney to find out more.