Residency Issues in Bankruptcy

Debtors who are considering filing for bankruptcy will be affected to varying degrees by at least three significant residency issues that are described below.

Time in the State. For a debtor to file a bankruptcy petition in Arizona (or any other state), they must have lived in Arizona for the greater part of the 180 days prior to the bankruptcy filing.

State Exemptions. Another residency issue arises in regard to which state’s exemptions apply to a recently relocated debtor. Exemptions are those provisions of state, federal and bankruptcy law that allow a debtor to keep some of their money and property despite filing a bankruptcy.

For a bankruptcy filed in Arizona, the exemptions are those provided by Arizona law and as well as some by federal law. However, in order to claim Arizona exemptions, the debtor must have lived continuously in Arizona for two years. If the debtor has not lived continuously in Arizona for two years, then the debtor can claim the exemptions from the state in which they previously lived, so long as they had continuously lived there for two years. If the debtor does not meet either residency requirement, the debtor must use those of the Bankruptcy Code.

Homestead Exemptions. The right to claim a homestead exemption is also effected by a residency requirement. The homestead exemption under Arizona law protects $150,000 of equity in a residence – a house, or a mobile home and the land on which it is located – that is used primarily for personal, family or household purposes (see related article). The homestead is reduced to $125,000 if the filing debtor owned the house for less than 3.3 years (actually 1,215 days) unless the debtor had lived in another house in Arizona and sold that house to move into their current home.