But this is not to say that the benefits of filing can be obtained without restrictions. Over the years, a variety of laws have been passed and subsequently refined to prevent abuses to the system. This was the ostensible purpose of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), which substantially revised Title 11 of the United States Code, generally in a manner unfavorable to consumers. These revisions included changes to the residency requirements that filers must observe. As things stand today, the residency requirements imposed by the bankruptcy code govern (a) where an individual is allowed to file the papers and (b) which exemptions the filer is allowed to declare.
We’ll begin with the first part. Although there are many court districts across the land that manage bankruptcy cases, a filer can’t simply pick the one they prefer; they must file in the appropriate district of the state where they maintain their residency. This is determined by a simple formula: An individual must go to a bankruptcy court in the district where they have lived for the majority of the 180-day period immediately prior to filing the papers. To put it another way, you have to file in the state where you have lived for at least 91 days out of the previous 180. So, if you move from, say, Colorado to New York and immediately elect to declare bankruptcy, then you will be forced to file in Colorado and go through the process as regulated by that state’s laws.
This is an important consideration because laws can vary significantly from one state to another. For example, a filer may move to another state in order to pass the Means Test, which is calculated separately by each state according to its median income level. While the Means Test of the filer’s old state barred them from seeking Chapter 7 relief, their new home allows them to meet this standard. However, they can’t benefit from the more advantageous laws of their new state unless they’ve met the residency requirements. In a case like this, it is often advisable to delay filing the papers until one has lived at the new residence for at least 91 days.
Incidentally, the practice of moving from one state to another in search of favorable bankruptcy terms is known as “forum shopping,” and it is the sort of thing that legislators have taken steps to restrict. This brings us to another aspect of BAPCPA: Its stringent residency requirements relating to state and federal exemptions. It is important to understand that having the right to file bankruptcy in a particular state does not necessarily mean that a filer will be able to use that state’s exemption schedules (e.g., homestead, automobile, wildcard). Why is this? The rules that determine an individual’s access to a given state’s exemptions are much stricter than those governing the basic right to file for bankruptcy in the area. To be able to use a state’s exemptions, a filer must live continuously in the state for 730 days, i.e., two full years. Alternatively, an individual can still meet the requirement if they have lived in the state for the majority of the 180-day period ending before the 730-day period prior to filing.
For clarity’s sake, it’s probably worth going over this again. If you have lived in New York State non-stop for two years immediately prior to filing for bankruptcy, then you can use the (often generous) state exemptions that may allow you to retain possession of your car, home, property, etc. If not, you can still pass the exemption test if you lived in New York State for the majority of the six-month period before that 730-day period—that is, the better part of the 180-day time frame that began two-and-a-half years ago and ended two years ago.
If the filer can’t meet this standard either way, then they will be stuck with the federal exemptions—which tend to be much less attractive, at least in New York State. They can still file for bankruptcy in New York State, however, so long as they can meet the 91-out-of-180-day test that we discussed earlier.
Confused? A Long Island Chapter 7 bankruptcy lawyer can steer you through the process. Contact the Law Office of Ronald D. Weiss for your free consultation.