Venue in Bankruptcy.(Where Your Petition Should Be Filed)
Venue in bankruptcy refers to the proper district and division (if your district has multiple divisions) in which your bankruptcy petition should be filed. In most consumer cases proper venue is a simple matter of filing the bankruptcy petition in the district and division in which the debtor has his/her residence or business headquarters. For instance, if you live in Sacramento you would probably file for bankruptcy in the Sacramento Division of the U.S. Bankruptcy Court. However, venue in bankruptcy may be appropriate in several districts, and for various reasons one division may be more advantageous than another.
Venue: 28 USC § 1408(1)
Title 28 of the United States Code, Section 1408 paragraph 1 sets forth the rule for venue in voluntary and involuntary bankruptcy cases. In plain language, the section states that the debtor should file their bankruptcy petition in the district where either their domicile, residence, principal place of business, or principal assets have been located for the longest portion of the 180 days preceding the bankruptcy filing.
Domicile vs. Residence
As stated, venue for bankruptcy cases is proper where the debtor maintained either a domicile or residence for the 180 day period before bankruptcy. However, what constitutes a domicile as opposed to a residence is often not clear to individuals contemplating bankruptcy. Therefore, let’s evaluate what sets a domicile apart from a residence.
Domicile refers to the individual’s actual residence in fact and the residence the individual will return to after a period of absence. The determination of an individual’s domicile is a mixed question of law and fact that requires an evaluation of the totality of the individual’s contacts with the state and their intent to remain there. Consequently, identifying one’s domicile is not a bright line analysis that looks to where the individual physically resided for a majority of the year, but a more subjective test that incorporates the individual’s intent. An individual’s intended domicile is most likely the “home” they would return to after a long vacation. In contrast, an individual’s residence for bankruptcy venue purposes is a permanent home rather than a stopping place for business or pleasure. Furthermore, while an individual can have only one domicile, they can have multiple residences.
The contrast between domicile and residence is best illustrated with an example. Let’s say that “Mike” owns a home in the state of California where he resides with his wife and two children. Mike is an elementary school teacher in a California public school where he works for 9 months out of the year. Mike’s children also attend the same school for the full academic year. Mike maintains a California driver’s license and designated California as his state of residence on the previous Census. However, in addition to his California home, Mike also owns a summer home in Arizona. During the summer Mike and his family reside in the Arizona home, but always return to their California home when the school year resumes. In this example, Mike maintains both a domicile and residence in the State of California. The totality of Mike’s contacts with California are stronger than in Arizona, and California is probably where Mike would return to after a long period of absence. In contrast, Mike at best maintains a residence in Arizona. On the other hand, given the more restrictive definition of residence for bankruptcy venue purposes than in other areas of law, Mike may not have a residence in Arizona since it is not his “permanent residence.”
Where an individual maintains their principal assets is self-explanatory and will not be analyzed in this article.
Principal Place of Business
Bankruptcy venue is proper for business entities in any district where the entity maintained its principal place of business for the 180 days before filing. Where a business maintains its principal place of business is determined by the “nerve center” test. The nerve center test looks to where the business entity made it’s management decisions. In other words, the principal place of business is the location where “a corporation’s officers direct, control, and coordinate the corporation’s activities.” [(Hertz Corp. v. Friend (2010) US, 130 S.Ct. 1181, 1192] The nerve center of a business is not where a corporation was organized, but where its essential managerial decision are made.
Bankruptcy venue is also property in the district where the debtor’s affiliate [an entity in which the debtor has 20% or greater control (or vice versa), or a person or entity whose business is operated by the debtor under a lease or operating agreement (or vice versa)], general partner, or partnership already has a bankruptcy case pending. This alternative venue allows an entity to file for bankruptcy in a division in which they have neither domicile, residence, place of business, nor assets.