The Transient Debtor and the Debtor's Homestead Exemption

• Published in: American Bankruptcy Institute journal 2024-08, Vol.43 (8), p.14-54
• Main Author: Richardson, Laura E
• Format: Article
• Language: English
• Subjects: Bankruptcy; Case law; Extraterritoriality; Federal courts; Language; Legislatures; Personal property; Restrictions; State laws
• ISSN: 1931-7522

Opt-in states allow the debtor to choose either the Code-provided exemption scheme or the debtor's home state exemptions, while opt-out states limit the debtor to the state law-provided exemptions.7 Further complicating the Bankruptcy Code's system of exemptions was the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA).8 In an effort to limit forum-shopping by debtors, the legislature laid out formulaic requirements under 11 U.S.C. § 522(b)(3)(A) (among other changes) that fixed new domiciliary restrictions on debtors' claims of exemptions.9 Under BAPCPA, the period that a debtor must be domiciled in a state to claim that state's homestead exemption increased from 91 days (the greater portion of 180 days) immediately preceding filing to a period of 730 days immediately preceding the filing of the petition.10 If a debtor has not been located in a single state for the full 730 days, the court looks to where the debtor was domiciled for the 180 days immediately before the 730-day period or for a longer portion of the 180-day period.11 Pre-BAPCPA, there was unity between the 180 days for determining venue and the 180 days for claiming property exemptions.12 Following BAPCPA, the time for determining venue remained unchanged, while the timeline for determining applicable exemption law increased more than eightfold. Because the determination of venue no longer matches the choice-of-law provision, courts were thrust into applying or determining whether to apply a foreign state's exemption laws.13 BAPCPA's enactment created ambiguity as to how state homestead exemptions are to be applied under § 522(b)(3), thereby causing a split of authority. The bankruptcy court ordered the debtor to amend her scheduled exemptions, finding that § 522 pre-empted state law insofar as the debtor was subject to the exemptions of Illinois applicable to an Illinois resident as of the date of filing.20 On appeal, the district court reversed, finding that the restrictive language of the Illinois exemption statute was limited to Illinois residents as of the date of filing. Since the debtor was no longer a resident on her petition date, a plain reading of the statute allowed her to claim the federal exemptions.21 The state-specific approach becomes more difficult to apply where the domiciliary state's homestead statute is silent as to its application to nonresidents and/or property located outside of its borders. In this case, the debtor and her former husband sold