Does Length Of Residency In Florida Affect Your Bankruptcy?
One of the things your bankruptcy lawyer will ask you when you file for bankruptcy is when you moved to Florida, or how long you have lived in Florida. You may be wondering why you’re being asked that question, but it can make a big difference in your bankruptcy case.
What Laws Apply?
You don’t have to be a resident of Florida to file for bankruptcy. Residency doesn’t dictate whether you can file for bankruptcy; it determines what bankruptcy laws will apply to you.
Some states use federal bankruptcy laws that determine things like what property you get to keep in your bankruptcy (known as exemptions). But other states, like Florida, use their own rules. Florida residents will use Florida bankruptcy exemptions, assuming they meet the Florida residency requirements.
Residency requirements are instituted to avoid people from forum shopping—that is, from moving away from a state that may not have favorable exemptions, to a state like Florida that may have more exemptions, solely for the purpose of taking advantage of Florida’s exemptions. Florida requires that Florida residents use its exemptions in bankruptcy, but some states do give residents an option of choosing federal or state exemptions.
To get the benefit of Florida exemptions, someone who files for bankruptcy must have lived in Florida for two years previous to the filing. If you have lived in Florida for less than that time period, then the court will look to wherever you have spent the most time in the 180 days before you filed. Whatever that state is, will be the exemptions that you will use (or you will use federal exemptions, if that state opts to use federal exemptions).
The one exception to the two year rule has to do with homesteads. To take advantage of Florida’ generous homestead laws, which allows the exemption of all equity or value in homestead property, a debtor must have lived in Florida for 40 months. You can combine residences—in other words, it doesn’t matter how many houses have been your homestead, so long as you have had a homestead in Florida for the full 40 months.
If you have lived in Florida for less than this time period, you can still exempt your property, but only up to a maximum cap of $160,375.
As you can see, because of the two year-40 month difference, it is possible to be in a situation where you get the advantage of Florida’s exemptions, but be forced to still use the federal exemption for your homestead.
Benefits of Federal Exemptions
Federal exemptions do have some benefits that Florida’s exemptions do not have, like a jewelry exception, an exception for business tools, exemptions for proceeds of a personal injury settlement, and an increased exemption on equity in your vehicle.