When facing overwhelming debt, filing for bankruptcy in the U.S. offers a powerful path to a fresh financial start. However, a common concern for many, especially immigrants, is the fate of their hard-earned assets. Will they lose everything? The answer lies in understanding bankruptcy exemptions, which allow debtors to protect certain property from being sold to pay creditors.

This blog post from LforLaw will explain how bankruptcy exemptions work for immigrants in the U.S., discuss the choice between federal and state exemptions, and highlight potential challenges related to residency requirements for protecting your valuable assets in 2025.

What Are Bankruptcy Exemptions?

Bankruptcy exemptions are legal provisions that allow a debtor to keep certain types and amounts of property from being included in the bankruptcy estate. In a Chapter 7 bankruptcy, non-exempt assets can be sold by the bankruptcy trustee to pay creditors. In a Chapter 13 bankruptcy, exemptions help determine how much you must pay unsecured creditors through your repayment plan.

The goal of exemptions is to ensure that individuals filing for bankruptcy can retain basic necessities for a fresh start, such as a home, car, and household goods.

Federal vs. State Exemptions: The Crucial Choice

In the U.S., bankruptcy exemptions are available at both the federal and state levels. Debtors typically have a choice, but this choice is dictated by the state where they file and their period of residency:

1. Federal Bankruptcy Exemptions: These are a uniform set of exemptions provided by the U.S. Bankruptcy Code. Examples include:
   • Homestead: Up to $27,900 in equity in a home.
   • Motor Vehicle: Up to $4,450 in equity.
   • Household Goods: Up to $14,875 total (with a $700 per item limit).
   • Tools of Trade: Up to $2,800.
   • Wildcard Exemption: A certain amount that can be applied to any property (e.g., leftover homestead exemption amount).
   • Retirement Accounts: Generally fully protected.
2. State Bankruptcy Exemptions: Most states have their own unique set of exemptions, which can be more generous or more restrictive than the federal ones. Some states allow debtors to choose between federal and state exemptions, while others (known as “opt-out” states) require debtors to use their state’s exemptions.

The “180-Day Rule” and “730-Day Rule” for Residency:

To claim a state’s exemptions, you must have been a resident of that state for a specific period.

• 180-Day Rule: To file bankruptcy in a particular state, you must have resided there for the greater part of the 180 days (approx. 3 months) immediately preceding your filing.
• 730-Day Rule (2 Years): To claim a state’s specific state exemptions, you must have been domiciled (had your primary, permanent home) in that state for the 730 days (2 years) immediately preceding your filing.
  • If you haven’t resided in one state for 730 days: You must use the exemptions of the state where you lived for the greater part of the 180-day period before the 730-day period. This often means you might end up using federal exemptions, even if your current state is an “opt-out” state. This can get complicated and requires careful analysis by an attorney.

Exemptions for Immigrants: Specific Considerations

For immigrants, the application of these rules can present unique challenges:

1. Residency Requirements and Recent Movers:

   • Immigrants who have recently moved to the U.S. or who have recently moved between states within the U.S. might find themselves unable to claim the generous homestead exemptions of their current state due to the 730-day rule. In such cases, they would typically default to the federal exemptions, which may be less advantageous depending on their assets.
   • For example, states like Florida or Texas have very generous homestead exemptions that can protect significant home equity, but you must meet their specific residency requirements. If you haven’t lived there for two years, you might be limited to federal exemptions.

2. Green Card Holders vs. Non-Permanent Residents:

   • Green Card holders generally face the same exemption rules as U.S. citizens once they meet the residency requirements. Their status as lawful permanent residents simplifies the “domicile” aspect.
   • Non-permanent residents (visa holders like H-1B, L-1, F-1): These individuals can still claim exemptions if they meet the residency rules. The nature of their temporary visa status doesn’t inherently disqualify them from protecting assets under federal or state law. However, proving “domicile” for state exemption purposes might require showing intent to remain in the U.S. for the foreseeable future, which aligns with the nature of their visa (e.g., work visa with intent to apply for Green Card).

3. Property Held Abroad:

   • U.S. bankruptcy generally covers all assets of the debtor, wherever located. This means foreign assets (e.g., a house in your home country, foreign bank accounts) are technically part of your bankruptcy estate and must be disclosed.
   • However, the practical enforceability of a U.S. bankruptcy court order over foreign assets can be limited, as it depends on the laws of the foreign country and international agreements. Nevertheless, failure to disclose foreign assets is considered bankruptcy fraud and has severe legal and immigration consequences.

Protecting Your Assets: Practical Advice

• Disclose Everything: Be completely honest and transparent about all your assets, both U.S. and foreign, on your bankruptcy petition. Hiding assets is a federal crime with severe penalties.
• Understand Exemptions: Work with an attorney to understand which exemptions apply to you (federal vs. state) and how they will protect your property. This calculation is crucial for deciding whether to file Chapter 7 or Chapter 13.
• Plan Ahead (If Possible): If you are considering bankruptcy and have recently moved or are planning a move, discuss the timing with your attorney to maximize your exemption benefits.
• Document Ownership and Value: Have clear documentation for the ownership and estimated value of all your assets.

Conclusion

Navigating bankruptcy exemptions, especially with the added layer of immigration status and multi-state residency rules, is highly complex. A misstep can lead to the loss of valuable property. At LforLaw, our attorneys specialize in guiding immigrants through the bankruptcy process. Don’t let the fear of losing your assets deter you from seeking debt relief. With the right legal counsel, you can understand and utilize bankruptcy exemptions to secure a fresh financial start while protecting what matters most. Contact LforLaw today for a confidential consultation and expert advice on protecting your assets in U.S. bankruptcy.