By Columbia – Lexington Bankruptcy Attorney Lex Rogerson
Joe and Susan had recently moved to Columbia from Arizona when they came to see me about bankruptcy. Their move raised two issues: when are they eligible to file bankruptcy here, and which state’s law determines the property they can exempt?
Both these questions involve domicile, which needs a little explanation when it comes to where to file bankruptcy.
Domicile means permanent residence. You establish a domicile by being physically in a state and intending to remain there indefinitely. Once you establish domicile in state #1, you remain a domiciliary of that state until you to go state #2 and decide to remain there for good. Being raised in Columbia, South Carolina, I went off to college in Connecticut for four years, but I did not lose my South Carolina domicile because I always knew my stay in New England, while long, was temporary. By contrast, Joe and Susan had been in Columbia for only a couple of months, but since they planned to stay here for the foreseeable future, they had gained domicile in South Carolina.
Venue: Where you can file
Bankruptcy courts are federal courts, so each case is filed in a specific judicial district. South Carolina is a single federal district, while larger states contain two or more districts. The usual rule is to file in the district where you have lived for the last 180 days, but you can also file where your principal assets are located or, if self employed, where you maintain your principal place of business. If your residence, assets, or business has moved in the that time period, you can file where they were located for most of that time.
With Joe and Susan, unless there was a reason to move faster, I would probably wait till they had been in South Carolina for 91 days before filing here. In the Columbia area, we are in the center of the state, so this is rarely a problem because only those who move a relatively long way change their domicile. In Aiken or Rock Hill, a move little more than across town can put you in a new state.
A case filed in the District of South Carolina is assigned to one of three divisions, which determines where the meeting of creditors (your bankruptcy hearing) and any hearings will be held. By filings, the largest of these is the Columbia Division, which covers a swath down the middle of the state from Aiken to Mullins and includes the communities where most of my clients live: Columbia, Irmo, Lexington, Orangeburg, Aiken, Winnsboro, and Newberry. The Charleston Division includes the entire coast and several adjacent counties, while the upper piedmont falls in the Spartanburg Division.
Exemptions: What you can protect, or what you must pay
As we have discussed elsewhere, exemptions are critical in all individual bankruptcy cases. In Chapter 7, they determine what you can protect, and what you might lose, if you file. In Chapter 13 bankruptcy, they help determine how much you must pay your creditors.
Although bankruptcy is primarily federal law, state law determines what property is exempt. Each state exemption scheme protects different kinds of property and different dollar limits. But where the debtor has moved, which state’s law applies? In 2005, to prevent people from “forum shopping” by moving to a state with better exemptions, Congress tightened things up.
Now debtors can use the exemptions of their home state only if they have been domiciled there for two years. If they have moved more recently, it’s the state where they lived in the six months before that — between 2 and 2-1/2 years ago. For Joe and Susan, this meant Arizona law.
But here it gets a little tricky. Arizona law, like many others, says only its residents can use its exemptions. So if Joe and Susan can’t use South Carolina or Arizona exemptions, what can they protect?
Fortunately, Congress inserted a saving provision. Debtors who get shut out by domicile requirements like this can use a set of federal exemptions included in the Bankruptcy Code itself. These exemptions are more favorable than those of some states and not as favorable as others. For example, the federal homestead exemption is currently $22,975, as compared with $56,150 under South Carolina law and $21,500 in Georgia.
Figuring exemptions accurately is critical, but it can be confusing to clients and even to attorneys who practice bankruptcy law occasionally. That’s just another reason you should get advice from a certified bankruptcy specialist — or at least a lawyer whose main practice is bankruptcy.
The case examples on this blog represent actual cases we have handled. We have altered the names and identifying information to protect client confidentiality.