Ten Things I’d Change About BAPCPA-Part Two

19 Oct Ten Things I’d Change About BAPCPA-Part Two

In this series, I’ll consider the possibility of changing some of the provisions of BAPCPA, to eliminate some of the foolishness, and promote efficiency and economy in both the court and my practice. 

In Part One, I suggested eliminating the requirement for credit counseling when foreclosure is pending. Second on my wish list is a simplification of provisions which determine the applicable exemption scheme in any particular case.

A bit of background is necessary here, so bear with me.  When the Bankruptcy Code was enacted in 1978, a federal exemption scheme was included in the newly codified law.  “Exemptions” are the provisions of the law that provide for the type and amount of property that creditors can’t reach–what is “exempt” from seizure.

There was concern among certain members of the Senate Judiciary Committee, however, that a federal scheme would result in a windfall to some debtors in states where the cost of living (and of real property) was lower.  Their solution was to allow states to opt out of the federal exemption scheme and enact their own laws.  As a result, the amount of property that a bankruptcy debtor can retain in some states is significantly greater than in others.  This fact led, in turn, to a practice known as “exemption shopping,” where someone with assets to protect would move to another state in order to obtain the benefit of a more generous exemption statute.

Now, I think it’s important to note that this was hardly a common occurrence.  For one thing, most people have exhausted all their assets before they even consider bankruptcy.  For another, only someone with significant wealth can afford to pick up and move in order to keep more of it.

It was, however, in an effort to curb exemption shopping that BAPCPA included a provision that allows a debtor to claim exemptions in the state of his residence, UNLESS he has been a resident for less than two and a half years, in which case he can claim the exemptions from the state where he lived before, unless he didn’t live there long enough, or unless that state’s exemption scheme is not extra-territorial….  Okay, now you see why I think this should be changed.  This can be a real nightmare to figure out, and it is just not necessary.

I can certainly understand why we don’t want to promote exemption shopping.  The problem is that this tortured series of provisions applies to people who had no idea of exemption shopping, and lack the incentive or the ability to do it, even if they knew what it was.

It applies to those who have not relocated voluntarily, like military families.  It applies to those who have moved from a jurisdiction with favorable laws to one with less favorable ones.  Of course, that increases attorney fees when this needlessly complex issue arises.  In fact, the provision is so badly drafted and so difficult to apply, there are probably infinite possibilities for improving it.

The simplest solution I can think of is to simply provide that state exemptions apply, unless the court finds that there is a fundamental unfairness in so doing, and allow the court to determine which scheme is fair to use.  That would meet the goal of preventing exemption shopping, without dragging everyone who has happened to relocate through unnecessary delay and complication.

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