When I file for bankruptcy, what exemptions do I use?

Just because you live in Arizona when you file for bankruptcy doesn’t mean you’ll be able to claim Arizona exemptions.

As a result, you and your bankruptcy counsel must decide which state laws will determine your exempt assets before filing bankruptcy. The state exemption statute that applies to your bankruptcy is established by where you lived for the previous 730 days (two years) prior to filing your bankruptcy. If you did not live in Arizona for the entire two-year period prior to filing your bankruptcy, your bankruptcy exemptions will be those allowed by the state in which you lived for 180 (6 months) days immediately prior to the two-year period, or the state in which you lived for the greater portion of that 180-day period. Are you confused yet? Making a diagram of where you lived and when so we can talk about this issue.

For example, if a person has resided in Arizona for more than two years and files bankruptcy today, he or she may use the Arizona property exemptions. However, if that person did not live in Arizona for two years, he or she will have to rely on the exemptions of the state in which he or she spent the previous two years. It’s likely that the previous state’s exemptions are only available to residents. As a result, the individual filing for bankruptcy will have to rely on federal exemptions. In many circumstances, the bankruptcy exemptions provided by the previous state will be superior than those provided by Arizona law.

Consider the case of John. In January, John sells his Georgia home for $100,000 and relocates to Arizona. John buys an Arizona homestead for $100,000 in March of that year, obtains an Arizona driver’s license, and registers to vote in Arizona. John loses his job 14 months after coming to Arizona and declares bankruptcy. John’s bankruptcy would be subject to Georgia’s relatively limited exemption laws, and he might not be eligible for Arizona’s homestead protection (but laws change and so may this result).