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“Residence” and “Domicile” in Bankruptcy

September 30th, 2016 at 7:00 am

Your domicile, and sometimes your residence, determines whether you can file bankruptcy, where to file, and what property you keep.

 

1. Who Can File Bankruptcy? A person can file a bankruptcy case in a U.S. bankruptcy court if he or she “resides or has a domicile, a place of business, or property in the United States.” (Section 109(a) of the U.S. Bankruptcy Code.)

2. Where Can You File? The bankruptcy case must be filed in the bankruptcy court of the federal judicial district in which the person filing the bankruptcy has his, her, or its domicile, residence, principal place of business… , or principal assets.” (28 U.S. Code Section 1408.)

3. What Property Can You Keep? The person filing bankruptcy (the “debtor”) uses the set of “exemptions” (to protect property from creditors) available “at the place in which the debtor’s domicile has been located for the 730 days immediately preceding” the date of the bankruptcy filing.  (Section 522(b)(3) of the Bankruptcy Code.)

So What’s a Domicile?

This term is not defined in the Bankruptcy Code.

In general your domicile is the place that you consider your present permanent home.

Most of the time it is the area where you live, with the intention of continuing to live there. Here’s a straightforward example. You and your spouse have purchased and are living in a home, and use that address for all residential purposes. That address is on your driver’s license, income tax returns, and virtually all other official records.

But sometimes your domicile is not where you are living now temporarily. Rather it’s where you intend to return to because you consider that place to be your home. Here’s an example. You’ve been living in one area for a long time and consider it your home. But some temporary reason—a short-term job, a dying parent—induces you to move elsewhere. You don’t change your address on your driver’s license or income tax returns. You are clear in your mind that you are away from home and intend to return.

You can have only one domicile. It can of course change, but only if you intend to change it and make changes showing your intention.

And Now What’s a Residence?

This is also not defined in the Bankruptcy Code. Your residence is the place you are currently residing. As noted above, you don’t always reside in your domicile.

You can change residences by simply moving from one place to another. If you usually spend part of the year in one place and another part of the year in another place, your residence changes as you go from one to the other. (Your domicile would be in one of these places, the one that you consider your home more than elsewhere.)

Here’s an example. You are a high school teacher, whose extended family lives in another state. For years you’ve taught summer school while living in a brother’s spare bedroom in that other state. So you have two residences, the one during the school year and the other where spend your summers.

Applying These Terms

So, reinforcing what we just learned:

1. You can file bankruptcy in the U.S. if you reside or have your domicile in the United States.

2. You can file in the federal judicial district either where you reside or where you have your domicile.

To give you a better sense of this, there are 94 federal judicial districts. About half the states make up one district each. Most of the other states are divided into two or three districts. Three states—California, Texas, and New York—each have four districts.

So, if you have residences in different federal districts, you can file bankruptcy wherever you have a residence. (You can also file wherever you have a principal place of business or your principal assets.)

3. The use of the property exemptions available to a state’s residents requires not just residency but being domiciled in that state for 730 days—2 years. If you’ve not been domiciled in one place for the last 2 years, you use the exemptions available to the place where you were domiciled during the 180 days immediately before 2 years ago.

The purpose of this rule is supposedly to prevent “exemption shopping”—moving to an area for its better exemptions. Arguably this was a unnecessary solution to a non-existent problem. But it’s a rule that you must live with regardless if you’ve moved your domicile in the last two years. Be sure to tell your bankruptcy lawyer about it when you first meet so he or she can advise you appropriately.

Written by Staff Writer

September 30th, 2016 at 7:00 am

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