November 21, 2017

Exemptions & Bankruptcy – What State’s Exemptions Apply & Why?

I have written several posts on exemption law and bankruptcy, because exemptions are such an important part of the bankruptcy process.  Exemptions simply are laws that protect a client’s property when he or she files for chapter 7 bankruptcy and even chapter 13 bankruptcy.

Oregon has two exemption schemes: 1) exemptions based on Oregon law, or 2) exemptions based on federal law.  Generally the Federal exemptions are much more advantageous to use, as they contain a powerful wildcard exemption that can protect assets that may not be protected using Oregon exemptions.

But what are the requirements to be eligible to use Oregon exemptions or Federal exemptions? Can another state’s exemption scheme apply to your bankruptcy if you file in Oregon?

To be eligible for Oregon exemptions or eligible to elect the Federal exemptions in Oregon, you must have lived in Oregon for the past 2 years.  If you moved from another state to Oregon a year ago, for example, another state’s exemption laws may apply.

The rule, simply stated, is: a debtor in bankruptcy can use the exemptions available in Oregon provided that the debtor lived in Oregon for the past 2 years.  If the debtor lived in more than one state in the past 2 years, then you look at what state the debtor predominantly lived in the 6 months prior to the last 2 years (or where the debtor lived predominantly between months 24-30).

An example of the above principal is in order: Client has moved to Oregon from Arizona a year ago, and had lived in Arizona for 5 years.  Client, therefore, has lived in more than 1 state in the past 2 years.  Since the client lived in more than 1 state during the past 2 years, then you must look at where the client lived predominantly during the 6 months before the 2 years (or lived between 24 – 30 months ago).  In this case, since client moved to Oregon less than 2 years ago, and lived in Arizona for the 6 months prior to the 2 years, Arizona exemption law applies despite the client filing bankruptcy in Oregon.

Now, some state’s exemption laws only apply to residents of that state.  This is usually clearly written into the state’s exemption laws.  What happens when, based on the above analysis, a state’s exemption laws apply to a person, but only if that person is a resident of that state? Federal exemptions then will apply.

Why is this convoluted system in place?  To deter “forum shopping,” or moving to a state that has better exemption laws to protect assets and then filing bankruptcy in that state.  By making it more difficult to forum shop, Congress intended to help deter abuse of the bankruptcy system.

Determining what exemption law applies is not always a simple process.

If you have lived in more than one state in the past 2 years, another state’s exemption laws may apply (other than Oregon).  If you have questions about bankruptcy, exemptions, and what laws may apply, please feel free to contact me today for a free in-office bankruptcy consultation.

 

Pursuant to 11 U.S. Code § 528: "I am a debt relief agency. I help people file for bankruptcy relief under the Bankruptcy Code."

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