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7. Two-year residency requirement for state or local exemption laws including homestead.
A new § 522(b)(3) specifies the state or local law governing the debtors' exemption as the law of the place where the debtor's domicile was located for 730 days before filing, and if the debtor did not maintain a domicile in a single state for that period, the governing exemption law is that of the place of the debtor's domicile for the majority of the 180-day period preceding the730 days before filing (that is, between 2 and 2-1/2 years before the filing). If this new residency requirement would somehow render the debtor ineligible for any exemption, then the debtor is allowed to choose the federal exemptions. Accordingly, if § 522(b) (3) (A) results in a debtor becoming ineligible for any exemption , the debtor may elect to seek exemption under § 522 (d) which would permit exemption under the federal guidelines in this scenario--even if the state of the debtor's domicile is an opt-out state under § 522(b) (3) (A). This issue arises when state law requires some residency requirement to claim a state exemption or of the law does not permit an exemption for out of state property. There has already been some confusion as to what the application of state law would be under these circumstances and since the new § 522(b)(3) states that the federal exemptions can be used in the event that the rule of the domiciliary renders the debtor ineligible for "any exemption" some consumer law groups assert that this test could be applied on an exemption-by-exemption basis. This could potentially present the argument that a debtor might be able to use state exemptions for personal property (because there is no restriction under state law) and use the federal homestead exemption for a residence. In either case the new law brings an increased level of complexity which is going to require attorneys to become familiar with the state exemption laws in states outside where they practice based on the "preceding 180 days test." Cumulatively any complex or disputed homestead issues is going to tie up property in bankruptcy and may eventually force it onto the market for sale if a debtor is unable to surmount challenges to the homestead exemption. Notwithstanding the same the servicing of mortgages is going to become very complex and more costly and lenders may find the Trustee liquidating assets which may have otherwise been protected by homestead. This may lead to more restrictive lending requirements and tighten the ability for marginal borrowers to obtain loans.
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