Although the Virginia legislature has made a couple of modest changes to the exemptions laws that allow an individual to protect assets from creditors, the majority of the laws have not been revised in several years. It is time for the state legislators to look at these laws and update them.
When the bankruptcy laws changed in 2005 and imposed a residency requirement to use the state exemptions laws, the Virginia statutes actually created a prejudicial effect for those individuals who have been lifetime residents of Virginia and wish to remain in the state. Under the bankruptcy laws, an individual must have resided in the state for two years before they can use the state exemptions. If they have not lived in the state for two years, they must either use the exemptions laws for where they were living two years before filing for bankruptcy or they may have to use the Federal laws. Many states, including Virginia, require that an individual must be a resident of the state to use that state's exemptions. If an individual has recently moved to Virginia from a state that requires residency to claim the exemptions, the individual is allowed to use the Federal exemptions when they file a bankruptcy. Since the Federal exemptions are much better than the Virginia laws, an individual who has recently moved into the state is able to protect more assets than an individual who has been a lifetime resident of Virginia.
Since an individual must be living in Virginia at the time that they claim the exemptions, they could be better off by moving out of the state immediately before they file a bankruptcy. They will not have lived in the new state long enough to use the new state's exemptions and they are not residing in Virginia so once again they default to the more generous Federal exemptions. This can encourage individuals who have assets that cannot be protected under Virginia law to leave the state.
Virginia's current exemption statutes also penalize lifetime residents if an individual has to file bankruptcy more than once in their lifetime. Currently, the main exemption statute, commonly referred to as the wildcard exemption, has a lifetime cap on the amount that can be claimed. This statute is the one that must be used to protect everything from money in the bank to projected tax refunds to equity in a house. I have seen cases where an individual filed bankruptcy over 20 years ago and now needed to file again. However, they used almost all of their lifetime exemptions in the previous case. Now they must choose between giving up an asset such as a projected tax refund or struggling to be able to make payments in a Chapter 13 case. By contrast, someone, who has filed multiple bankruptcies in other states, does not face the same harsh treatment.
It is time for Virginia to stop penalizing individuals who have been life long residents of Virginia and wish to remain in the state. The exemptions laws need to be revised to allow individuals to get the complete fresh start that bankruptcy is supposed to provide!