Residency Requirements for Filing Bankruptcy

Since states have different bankruptcy rules, some people try to take advantage of the lax regulations in certain areas by moving there and declaring bankruptcy shortly afterward. The updated rules in 2005 changed that with various provisions, making it difficult to bypass the laws in your state by moving. If you have questions about your residence and bankruptcy, attend a consultation with a lawyer before proceeding with this major financial decision.

Legal Residency and the Means Test

It used to be that you only had to live in a state for 180 days before you could declare bankruptcy, but now you must live there for 730 days if you want that state's rules to apply to you. If you meet this requirement, you then have to pass the means test, during which your yearly income is compared with your state's median income. This is different in every state to account for cost of living differences, so you may qualify for bankruptcy in one state and not in another.

Varying Exemptions

Another fact to know about residence and bankruptcy is that exemptions often vary by state. For example, the homestead exemption varies widely, meaning your entire house may be an exempt asset in one state, but only a portion of it may be exempt in another. The rules differ for other types of assets, as well, which can make it unappealing for people to relocate to a less generous state before declaring bankruptcy. Of course, some people may be tempted to move to a state solely for their generous exemptions, but the other rules regarding residence and bankruptcy can prevent this.

Filing Rules

Before you file bankruptcy, you should know that one of the updated rules requires you to file in your county of residence. This is another regulation that can keep people from filing in a different state or county just to take advantage of more attractive laws.

Options

If you recently moved to another state and want to declare bankruptcy soon, know that you can still file, even if you have not lived there for two years. However, that state's rules will not apply to you. Instead, the rules from your previous state will apply to you when it comes to the exemptions and means test. Some states, however, do not allow their previous residents to use their bankruptcy rules after moving away, in which case you will need to use the federal regulations.

Hire an Attorney

If you are unclear of which state's rules apply to you, contact a lawyer. The rules regarding residence and bankruptcy may be confusing if you have moved recently, but a lawyer should be able to clear things up.