Exemptions and the 730-Day Rule

What Exemptions Do

Exemptions are the rules that let you keep property out of the bankruptcy estate. In a Chapter 7 case the trustee can collect and sell non-exempt property to pay creditors; exempt property is shielded from that process. According to the U.S. Courts (uscourts.gov), the Bankruptcy Code offers a federal exemption set under §522(d), but states are allowed to require their own schemes instead. The result is that what you keep depends heavily on which state's law applies. People's Justice is not a law firm and does not provide legal advice; the material below is general information about how the courts describe exemption law.

The 730-Day Domicile Rule

Which state's exemptions apply is set by the 730-day domicile rule in §522(b)(3) of the Bankruptcy Code. The rule looks back at where you were domiciled during the 730 days — two years — before you file. If you lived in a single state for that entire window, that state's exemptions generally govern. If you moved during the look-back period, the analysis becomes more complex and may point to the state where you lived for the greater part of the 180 days before the 730-day window. Congress adopted this rule, per uscourts.gov, so that filers cannot relocate to a debtor-friendly state on the eve of bankruptcy purely to claim richer protections.

How to think about the look-back

First, identify every state you were domiciled in during the two years before filing. Next, determine whether one state covers the whole window or whether you moved. Finally, apply the §522(b)(3) ordering rules to pin down the controlling state. Because the answer can differ from where you live today, this step is best confirmed by an attorney before any property planning.

Unlimited Homestead States: Texas and Florida

Texas and Florida are known for an unlimited homestead exemption — they protect home equity without a dollar cap. That generosity comes with caveats: both states attach acreage limits (distinguishing urban from rural property) and time-of-ownership requirements, and federal bankruptcy law layers on its own limits in certain circumstances. An unlimited homestead on paper does not mean unlimited protection in every case, which is why the acreage and timing rules must be applied to your specific property.

California: System 1 vs. System 2

California does not permit filers to choose the federal §522(d) set. Instead, California debtors elect between two state exemption systems. System 1 — the exemptions under California Code of Civil Procedure §704 — tends to favor homeowners with meaningful home equity, because it provides a larger homestead protection. System 2 — the exemptions under CCP §703 — tends to favor renters and filers with little or no home equity, because it includes a flexible 'wildcard' that can be applied to property of the filer's choosing. You pick one system or the other for the whole case; you cannot mix protections from both.

Choosing the wrong system, or the wrong state under the 730-day rule, can needlessly expose property the law would otherwise protect. People's Justice is not a law firm and does not provide legal advice; we are not a government agency. We can connect you with a licensed attorney who will identify the controlling state and the best-fitting exemption set for your situation.