WHICH EXEMPTIONS APPLY IN A SOUTH CAROLINA BANKRUPTCY
As I mentioned in a previous post, Congress allows different states to establish, most of the time, exemptions that the state feels are best for its residents. Some things, Congress believes, are too important to allow the states to have input into and in those situations, states are not allowed to change or amend the exemptions that a debtor may claim.
As I also mentioned, it was not unusual for a debtor in years past, to be advised to leave South Carolina, take their assets and go to a state where more assets could be protected. This happened even more in other states than South Carolina. In fact, I am not sure that most people in Congress can find South Carolina on a map. Anyway, Congress felt that this shifting assets to a different state was not good and a new rule was passed that became effective in late 2005. The new rules use a time line to determine what exemptions a debtor may use when a bankruptcy case is filed.
Congress passed a simple test in 11 U.S.C. § 522 of the United States Bankruptcy Code and if you want to read it, go there and feel sorry for all bankruptcy attorneys who must decode this stuff.
In simple English, this rule works as follows: Take the date that a bankruptcy case was filed and then look where the debtor resided for the 2.5 years prior to that date. If the state the debtor lives in now was the one that the debtor lived in for the 2.5 years prior to filing, the exemptions used are the ones that were established by the state where the bankruptcy case is being filed. Remember, this is Federal Bankruptcy Law being impacted by State Law, but, only to the amount that Congress thinks is proper. Sounds a little painful doesn’t it.
Of course, that also assumes that the state did, opt out of the Federal Exemption statutes and put its own into effect in the first place. (Don’t forget that some Federal Exemptions cannot be opted out of.) Now we know exactly what is going to be used for exemptions. But what happens when the debtor has not lived in one place for 2.5 years prior to the filing of the bankruptcy case? Sometimes I wish I could just tell the debtor to come back when they have lived in South Carolina for 2.5 years.
In plain English, this means that the exemptions that would be used are the ones in effect in the state where the debtor resided the greater part of the 180 days preceding the 730 day period prior to the filing of the bankruptcy case. Is this simple, no it is not.
Adding to the confusion is the rule that a state may not allow anyone to use its exemptions unless they are residents of that state at the time that the bankruptcy case is filed. If that occurs, the debtor will then have to use Federal exemptions.
All this to make sure that a debtor does not gain an advantage over most folks who lack the means, ability or advice to make the system work for them. There has been a goodly amount of litigation over what exemptions apply in a bankruptcy case. In some cases, how much goes to the creditors and how much goes to the debtor will turn on the outcome of these issues.