Which Exemption Laws Apply in a Chapter 7 Where the Debtor Moved to Michigan from Florida Before Filing? (Part 3 of 3)

Recall in part 1 and part 2 of this article that Joe is a former Florida resident who moved to Michigan and then filed chapter 7 bankruptcy. Under the bankruptcy code, Florida is considered to be his domicile because he lived in Florida for the 180-day period preceding the 730-day period preceding the filing of his case. The bankruptcy code requires Joe to use the Florida exemptions, but the Florida exemptions are widely held to be available only to Florida residents. Joe may be domiciled in Florida for bankruptcy exemption purposes, but he is no longer a Florida resident. So, an argument can be made that Joe cannot use the Florida exemptions. It can alternatively be argued that if Joe is permitted to use the Florida exemptions, the Florida exemptions cannot have extraterritorial application to property located outside its borders. In this third and final installment of this article we look at Joe’s personal property such as household goods, furniture, artwork, clothes, etc. under § 522(b)(3)(A). All of those assets are now located in Michigan.

Courts have held that the Florida exemptions are available only to Florida residents, but the plain language of the Florida statute only says that Florida residents who file bankruptcy cannot claim the 11 U.S.C. § 522(d) exemptions, commonly known as the “federal exemptions.”  The statute does not specifically say that a former Florida resident who files bankruptcy may not claim the Florida exemptions if required to do so under 11 U.S.C. § 522(b)(3)(A).  So, the federal bankruptcy court in Michigan could simply hold that the Florida exemptions apply to determine the extent to which the debtor can exempt personal property located here in our state.

If, on the other hand, the court were to hold that the Florida statute is limited to use by Florida residents, then there is persuasive authority that the residency restriction under Florida law is preempted by federal bankruptcy exemption law. See In re Camp, No. 08-11056-CAG, 2008 Bankr. LEXIS 2645 (U.S. Bankr. W.D. Tex. Sep. 18, 2008).  That case involved a Texas Chapter 7 case filed by a Texas resident in which Florida was debtor’s domicile for exemption purposes.  The court held that Florida law limiting the bankruptcy exemptions to use by its residents is preempted by the federal bankruptcy law which required the debtor to use those exemptions under § 522(b)(3)(A).  The Florida exemptions applied to debtor’s assets even though the assets were located in Texas.      

How does Florida exemption law then reach beyond its borders to apply to personal property located in another state? The general rule is that exemption laws do not have extraterritorial effect.

The Camp opinion noted that “concerns regarding extraterritorial effects of state law are misplaced.  We are dealing with a federal statute which has incorporated state law into its application.  Upon incorporation that state law became a part of the federal statutory scheme; so, it is federal law being given effect, not state law.”  So, in this situation the Florida law is said by some to have become “federalized.”

In our case, we have the relatively unusual situation where a federal bankruptcy court sitting in Michigan must apply Florida exemption law to personal property located here in our state.