Whether you can use the generally more generous federal exemptions depends on some obvious and some not so obvious timing rules.
Our last two weeks of blog posts have introduced a very important new Oregon law which now—for the first time in decades—gives our residents the option of using the federal property exemptions when filing bankruptcy, instead of just the Oregon exemptions.
This makes it more likely that you could file a Chapter 7 “straight bankruptcy” without losing any of your assets. If instead you are filing a Chapter 13 “adjustment of debts,” you may be able to pay less each month into your payment plan, or for a shorter time. In some cases the change in law means that you can file a Chapter 7 case and be done in a few months instead of needing to protect your assets with a Chapter 13 case taking years to complete.
In any of these scenarios the new law may make bankruptcy a better option for you than before, making the option that much more helpful. Once you file, this new law could save you thousands of dollars.
Effective July 1, 2013
Given the importance of the new law, some simple and some less simple timing issues come into play.
First, the simple: the law became effective on July 1. So, as made explicit in its language, it “appl[ies] only to bankruptcy petitions filed on or after [this] effective date . . . .”
So, the ability to use the federal exemptions applies to all bankruptcy cases going forward.
Cases Filed Between July 1, 2013 and Now
The first not-so-simple timing twist applies to cases filed on or shortly after July 1.
The change in the law caught some attorneys by surprise. Senate Bill 396 was not passed by the Senate until June 25, just a few days before the end of the 2013 regular session (with amendments that had been included and passed by the House a week and a half earlier). It was signed by Governor Kitzhaber on July 1, and went into effect that very same day. That’s because the bill included an “emergency clause”: “This . . . Act being necessary for the immediate preservation of the public peace, health and safety, an emergency is declared to exist, and this . . . Act takes effect upon its passage.”
In the whirlwind of changes in state law that go into effect at the end of a legislative session, it can take a few days, weeks, or even months for attorneys to become familiar with all of these changes. For example, one of the main conferences educating bankruptcy attorneys about this particular change in the law did not happen until August 8, 2013, nearly 6 weeks after it had gone into effect.
If you filed a Chapter 7 case on or after July 1, 2013, and if there was any question about the bankruptcy trustee claiming any assets, you should find out if your attorney was aware of the change in the law and applied the law most favorably for you. If you filed a Chapter 13 case on or after July 1, you should find out the same to be sure that you are not paying extra to protect an asset that could be better protected under the federal exemptions.
And especially if you filed any kind of bankruptcy during this period without an attorney, you would be wise to meet quickly now with an attorney to find out if you can take better advantage of this change in the law.
Cases Filed Before July 1, 2013
The second not-so-simple timing twist: although the law clearly does not apply to bankruptcies filed before July 1, if you filed a Chapter 13 case before that date in certain rare circumstances it may make sense to dismiss that case (voluntarily end it midstream), and file a new Chapter 7 one instead.
Here is the circumstance where that may make sense—although this is legally very delicate so you absolutely must first discuss it carefully with a very experienced bankruptcy attorney.
One reason to file a Chapter 13 case is to preserve assets that would otherwise be taken from you by the trustee in a Chapter 7 case—if the value of those assets exceeded the allowed Oregon exemptions. If such an asset-protection Chapter 13 case was filed on your behalf BEFORE this last July 1, AND now the newly available federal exemptions would now protect those assets, you cannot take advantage of the federal exemptions because the new law cannot be applied to the old case. However, it MIGHT be worthwhile to dismiss that Chapter 13 case, and file a new Chapter 7 case applying the federal exemptions if they now protected all of your assets. (You can’t take the simpler step of “converting” the Chapter 13 case into a Chapter 7 one because the old Oregon-only exemption law would very likely still apply to that “converted” Chapter 7 case.)
Only Applies If You Have Been in Oregon Long Enough
The third not-so-simple timing twist: without getting deep into the details of this bankruptcy law, in general if you moved recently to Oregon you do not get to use the exemption laws available to Oregon residents when filing bankruptcy (that is, either the Oregon or the federal exemptions) until you have been “domiciled” in Oregon for a full 730 days (2 years).
So, for example, if you moved to Oregon 6 months ago after living for the past several years in a state such as Idaho—which has “opted-out” of the federal exemptions as Oregon had done until July 1—you must use Idaho’s exemption scheme, even though your bankruptcy is being filed in Oregon. You could not use the Oregon state exemptions or the federal ones unless you waited another 18 months before filing bankruptcy (for a total of 2 years of living here).
However, if you had instead moved to Oregon 6 months ago after living for several years in the state of Washington—which has not “opted out” and so allows the use of either the Washington state or the federal exemptions—then you could use either the Washington or federal exemptions when filing bankruptcy now in Oregon.
Finally, if you moved recently FROM Oregon to another state and are filing after July 1, until you live for 270 days in that other state you are both stuck with and entitled to use the exemptions available to Oregon residents, that is either the Oregon or the federal exemptions.