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Determining Which Bankruptcy Exemptions You Must Use

Determining bankruptcy exemptions is not as simple as, “I live in Maryland, so I use Maryland exemptions.” You must reside in a state for a certain amount of time before you become eligible to use that state’s exemptions. The reason for this residency requirement is to discourage people from moving to a state that has more advantageous bankruptcy exemptions – for the sole purpose of using those exemptions – right before filing for bankruptcy relief. While the following information provides a basic outline of exemption rules, it is not intended to serve as legal advice. If you are considering bankruptcy, you should consult an experienced Maryland bankruptcy attorney who can determine which state’s exemption scheme is applicable in your case and whether you will be allowed to choose federal exemptions.

Residency Rules

To determine which state’s bankruptcy exemptions are applicable in your case, you start by looking at whether you have lived in your current state of residence for two or more years. If you have lived in the same state for the past two or more years, then you use that state’s bankruptcy exemptions. If you lived in more than one state during the past two years, then you look at the 180-day period immediately preceding the two-year period, and whatever state you lived in for the greater part of that 180 days is the applicable state for bankruptcy exemptions.

For example, if you moved to Maryland 15 months ago from California, where you lived for seven years, you have not lived in Maryland for the requisite two years and therefore cannot use Maryland bankruptcy exemptions. Because you lived in California for the entire 180 days that immediately precedes the two-year period, California is the applicable state for exemptions.

In some cases, when you follow the above residency requirements, the result may be that you are not eligible to use any state’s bankruptcy exemptions. In that situation, you are allowed to use federal bankruptcy exemptions regardless of whether the state in which you are filing allows them or not.

Determining your applicable exemption state and whether you are allowed to use federal bankruptcy exemptions can be very tricky. So can deciding whether you would benefit more from state or federal exemptions (you must choose one or the other – you cannot combine the two). A knowledgeable Maryland bankruptcy lawyer can help you make the right decisions to protect your assets.

Federal Versus State Exemptions

Chapter 7 and Chapter 13 debtors must choose between state exemptions (those set out by state law) and federal exemptions (those outlined in the Bankruptcy Code). Some states have “opted out” of federal exemptions, meaning debtors cannot use federal exemptions and must use the state’s exemptions instead. Maryland is an opt-out state that does not allow federal exemptions. However, debtors using state exemptions can use certain non-bankruptcy exemptions afforded under federal law.

Maryland bankruptcy exemptions allow debtors to protect assets such as:

  • Certain household goods and furnishings
  • Burial plots
  • Proceeds from health or disability benefits or settlements, medical insurance benefits, and life insurance or annuity earnings
  • State employee pensions
  • Crime victims’ compensation, unemployment compensation and workers’ compensation
  • Certain tools of trade
  • A specified amount of cash, real or personal property under the wildcard exemption

Avoid wasting time and money fixing costly mistakes. If you are filing bankruptcy in Maryland, let a qualified Maryland bankruptcy attorney help protect your assets by selecting the appropriate exemptions from the start. Contact an experienced attorney today to learn what property you can exempt and to obtain other important bankruptcy information.

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