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Under the old bankruptcy law, the personal property debtors were allowed to keep in Chapter 7 bankruptcy was determined by the laws of the state where they lived (as long as they lived there for at least three months). Under the new law, you must live in a state for at least two years prior to filing in order to use that state's exemption laws. Otherwise, you must use the exemptions available in the state where you used to live. Similar rules apply to homestead exemptions, which determine how much equity in a home you can keep when filing for Chapter 7 bankruptcy. However, to use your new state's homestead exemption, you must live there for at least 40 months.
Because exemption amounts vary widely from state to state, these new residency requirements could make a big difference in the amount of property you get to hold on to. For example, if you recently moved from California to Nevada and you have a fairly valuable car, you might want to wait to file for Chapter 7: Once you've been in Nevada for two years, you can claim its $15,000 exemption for motor vehicles. If you have to use California's exemptions, you can keep only $2,300 worth of equity.
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