Which Exemptions Do You Use In Bankruptcy?

When you file bankruptcy, your exemptions determine what property you get to keep.  There are federal exemptions and state-law exemptions.  The exemptions you use depends on where you have lived for the past two years prior to filing bankruptcy and whether that state requires you to use its exemptions or permits you to use the federal exemption.  If you’ve lived in North Carolina for the past two years, the answer is simple – you’ll use the North Carolina exemptions when you file bankruptcy.  You can read about those here.

But what if you haven’t lived in North Carolina for two years?  In that case, you look to where you lived for the 6-month period just before the two-year period.  For example, if you are filing bankruptcy on January 1st, 2018, you look to where you lived for the majority of the time from July 1st, 2015 to Dec 31st, 2015.

Once you have figured out which state applies for the 6-month period, there is one more step – you must look to the law of that state to determine if non-residents can use that state’s exemptions.  Many states do not allow non-residents to use its exemptions so you’ll use the federal exemptions. Some states do, and in that case, you will use your prior state’s exemptions, or if permitted, the federal exemptions.

The state-law exemptions usually differ from the federal exemptions, and depending on what you own, one set of exemptions may be more advantageous.  That is why it is important to carefully review the time periods and your assets to determine if you should go ahead and file bankruptcy now, or if it would be better to wait so that you can use North Carolina exemptions.