How Closing the ‘Mansion Loophole’ Affects Las Vegas Bankruptcy
One of the features of Las Vegas bankruptcy is Nevada’s generous homestead exemption. Las Vegas homeowners who file bankruptcy can exempt up to $550,000 in real property. Needless to say, Nevada’s is one of the best homestead exemptions in the country. It’s possible for most homeowners to keep their homes when filing bankruptcy here.
As a result, one might think that moving to Nevada to file bankruptcy is a good idea. Think about it: Someone who owes a large amount of money to an unsecured creditor but still has substantial assets might be deterred from filing bankruptcy. However, by moving to Nevada, that person can pour his or her assets into real estate and then discharge the remaining debt in chapter 7.
In fact, corporate wrongdoers used to do exactly that: fleece the shareholders and then hide their windfalls in Nevada real estate. The media referred to it as “the mansion loophole” after the kinds of houses they would buy. One of the changes the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act did was create a time limit on homestead exemptions. According to 11 U.S.C. § 522(p), debtors using state law exemptions are not allowed to exempt more than $155,675 in residences, cooperatives, burial plots, and homesteads if they moved to the state within the previous 1,215 days (about three years, four months). After that, they may use their new state’s exemption. Importantly, the bankruptcy code makes an exception for any amount of equity that the debtor has if he or she moved within the same state.
This homestead cap stops those wealthy wrongdoers dead in their tracks, but it rarely creates problems for debtors. Often people move to different states because they have lost their jobs in their previous ones. As a result, they might not be able to exempt all of their equity in their new state even if they didn’t intend to move to their new state to cheat creditors by hiding wealth in generous homestead exemptions.
If you recently moved to Las Vegas from another state, then you might find yourself in this situation. If so, you need an experienced Las Vegas bankruptcy lawyer to help you exempt as much of your estate as you rightfully can.
For more questions about bankruptcy in Las Vegas, please feel free to contact an experienced Freedom Law Firm Las Vegas bankruptcy attorney for a free initial consultation. Call us at 1-702-803-9251 to set up your free consultation.