The Code section in question is Section 522(p), which provides as follows –
(p)(1) Except as provided in paragraph (2) of this subsection and sections 544 and 548, as a result of electing under subsection (b)(3)(A) to exempt property under State or local law, a debtor may not exempt any amount of interest that was acquired by the debtor during the 1215-day period preceding the date of the filing of the petition that exceeds in the aggregate $125,000 [$125,000 (added by BAPCPA 10-17-05) effective 4-1-04. Adjusted every 3 years by section 104.] in value in–
(A) real or personal property that the debtor or a dependent of the debtor uses as a residence;
(B) a cooperative that owns property that the debtor or a dependent of the debtor uses as a residence;
(C) a burial plot for the debtor or a dependent of the debtor; or
(D) real or personal property that the debtor or dependent of the debtor claims as a homestead.
(2)…. (B) For purposes of paragraph (1), any amount of such interest does not include any interest transferred from a debtor’s previous principal residence (which was acquired prior to the beginning of such 1215-day period) into the debtor’s current principal residence, if the debtor’s previous and current residences are located in the same State.
Professor Pottow opines that the limitation in § 522(p)(2)(B) violates the Due Process clause of the Fifth Amendment of the Constitution by discriminating against interstate movers.
Here’s the problem. The Feds could exercise their Supremacy Clause power and pass hard caps in Bankruptcy for everyone. (Cf. Recommendations of NBRC.) But what they’ve done here, with 522(p)(2)(B), is made a cap but then made an exception to the cap for intra-state movers. What this means, therefore, is that the cap only applies to inter-state moving debtors. As such, it is a direct discrimination on those who move states. Moreover, this is not like a “vesting requirement,” which has survived constitutional scrutiny in previous cases, because the rule is not that the debtor keeps his old exemptions until he vests into the new ones. Rather, the rule is if he moves from Texas to Florida, he forfeits his unlimited exemption under each state’s laws just because he was an inter-state mover – a “penalty” visited by neither state’s laws!