Bankruptcy, States and Exemptions

It used to be simple.  If you lived in Oklahoma there was a certain list of property that you could claim as exempt (meaning that nobody can take it away from you as long as you have paid for it and paid your taxes).  It didn’t matter if you were filing for Bankruptcy.  It didn’t matter if you were not filing for Bankruptcy, but you had judgment creditors trying to get paid.  It didn’t matter how long you had lived here, what phase the moon was in, how much the property was worth, how much you owed on it or much of anything except total acreage and business usage.  Those were the good old days.

I have now talked to two people in two days who have both moved here from California in the last two years.  They both need to file for Bankruptcy.  Now, what makes both of these stories really entertaining is that they both have very little equity (if any) in their homestead; but they both have other property that they could not claim as exempt in Oklahoma.

Riding to the rescue?  The California homestead/wild card exemption!  Say, what?  The California homestead exemption SUCKS!  It protects a very small amount of value.  Own a house with $100,000 in equity?  In California you are screwed.  In Oklahoma — no problem.  However, cash in the bank, real estate other than your homestead — these are problems in Oklahoma.  Not in California where a Debtor can use a wild card exemption in lieu of a homestead exemption.  That means you can protect a certain dollar figure of property — regardless of what kind of property it is.  Voila!  Money in the bank?  No problem.  Real estate that isn’t homestead?  Taken care of.

Of course, the really fun part of using another State’s exemptions is that the Trustees don’t get it.  They probably should be seeing this fairly often under the new Act.  From the looks I get from Trustees, they aren’t seeing other exemptions much at all.

I will never forget the first time I used a wild card exemption (which we don’t have in Oklahoma) to protect an unreceived tax refund from a Bankruptcy Trustee.  It was early in 2006.  The 2005 amendments (including the choice of law provisions for exemption statutes) were brand new.  I had to explain it.  The Trustee looked at me like I had snatched food from his starving jaws and then slapped him.  It is one of my most cherished memories of practice.


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