Where you file bankruptcy is not supposed to make a difference, but it does. A client’s distance from the courthouse, comfort with an attorney, applicable law, practice and custom all differ from one district to the next.
The rules concerning the venue of a bankruptcy case offer debtors a variety of choices in where to file. Venue of a case is proper:
(1) in which the domicile, residence, principal place of business in the United States, or principal assets in the United States, of the person or entity that is the subject of such case have been located for the one hundred and eighty days immediately preceding such commencement, or for a longer portion of such one-hundred-and-eighty-day period than the domicile, residence, or principal place of business, in the United States, or principal assets in the United States, of such person were located in any other district; or
(2) in which there is pending a case under title 11 concerning such person’s affiliate, general partner, or partnership.
This language can be interpreted to permit a bankruptcy case to be filed where the debtor:
- Intends to live permanently
- Has most of their property
- Has a related person or entity that has already filed for bankruptcy
Under this language, a creative attorney may be able to file a bankruptcy case in multiple places, without too much stretching of the facts. The more careful principles are the timing elements.
The venue rules require that the debtor satisfy one of the bullet points above for the 180 days before the bankruptcy case is filed or for a longer period during that 180 days than any other period. This language means that during a period of a client’s transition, for ninety-one days venue will still be available in a desired jurisdiction.
An excellent example of this would be a client who has just done a short sale of her home in Maryland, goes to school and lives in Pennsylvania, has a job in Delaware but intends to join her husband after graduation in California. For 89 days after her short sale closes she can file a bankruptcy case in either Maryland (principal assets), Pennsylvania (residence) or Delaware (principal place of business). She may also argue that because she intends to permanently reside in California with her husband, that she can file her bankruptcy case there (domicile).
Once the 90th day after her short sale passes, she may no longer qualify to file in Maryland if her principal assets were not in Maryland for a longer period of the last 180 days than any other district.
Why does any of this matter? The place where a debtor may claim exemptions seems to be of greater substance than the place of filing, but many other factors come into play too. Sometimes a debtor wants to be away from his creditors, other times a debtor may want to be close to them. A debtor’s primary attorney may favor one jurisdiction over another, or a debtor will want to be closer to a financing source. Depending upon the type of case, a business debtor may want to be in a jurisdiction that is known for favoring complex cases while others may want to be where the employees reside. Some clients avoid certain venues out of fear that they will randomly be assigned a judge they perceive to be hostile to their company or industry.
Whatever the choice, the place of filing is another factor to consider in moving forward with a well planned bankruptcy.