Venue Shopping And Chapter 7: What Filers Should Know

Bankruptcy filers may have noticed that where they live can affect their bankruptcy in a big way. While bankruptcies are filed in federal court and follow overall federal guidelines, each state has a say about some important bankruptcy rules as well. Read on to find out more about why the state in which you live affects chapter 7 bankruptcy in matters.

What is Venue Shopping?

When it comes to legal matters, the venue is the location and court in which a case can be properly filed. With bankruptcy, you must file for bankruptcy in the state in which you are residing. However, the time you should be a resident and what constitutes residency changed with the passing of the Bankruptcy Abuse Prevention and Consumer Protection Act. This 2005 act made some sweeping changes that affected filers from all income levels and locations. Before this act, filers could move to a new state and take advantage of more attractive state exemptions. Exemptions are a key issue with chapter 7 because they regulate how much property a filer can expect to be exempted from seizure by the bankruptcy court.

Residency Requirements Now

Chapter 7 filers must reside in a state for at least two years now before they file for bankruptcy. Being a resident means you can show proof of at least some of these things:

  • A new state driver's license issued at least two years ago.
  • A rental lease or home purchase dated two years ago.
  • Change of address and mail received for last two years.
  • Proof of attending school in the new state for at least two years.

 Why Your State of Residency Matters

A bankruptcy exemption provides filers with either a value that can be deducted from an asset or the complete exemption of an asset. State exemptions vary but there is more to it. Some states also allow filers to use either state exemptions or federal exemptions. Also, some states allow filers to file bankruptcy in their previous state depending on how long they have been a resident. The biggest reason why it matters are the exemptions, though. Some states have very generous exemptions, and some do not. For example, one state might allow you to keep your primary residence, regardless of value while another state might exempt only $50,000 from the value of the home.

Most filers need to balance the need for financial relief with the potential to lose assets when they file. Speak to a bankruptcy lawyer to find out your options based on your assets, your residency, and when you moved.