Bankruptcy Exemptions

 

When a person declares bankruptcy, the bankruptcy trustee has the right to sell her property and use the proceeds to pay her creditors. However, bankruptcy law shields certain essential property from being sold, and that property is said to be exempt. Exemptions are complex, so any question about a specific asset’s being exempt should be directed to a bankruptcy attorney. But these are some basic facts about exemptions:

The Homestead Exemption:

Some of the equity in a bankruptcy petitioner’s home is protected by New York State’s homestead exemption. But not every petitioner is eligible for the exemption, or chooses to take it. The homestead-exemption amount varies depending on the petitioner’s marital status, and on which county in New York she resides in. Whether the homestead exemption is taken affects the exemption amounts that are available for other types of property.

Cash, Clothing, Jewelry, and Household Goods:

The current exemption on clothing, household goods, and jewelry is $10,000 if the homestead exemption is not taken; $1,000 if it is. That allows most bankruptcy debtors to keep all their clothing and household goods. Jewelry and art, on the other hand, are exempt only up to $1,000. ($1,000's being the total exemption, not the exemption per item). Cash up to $1,000 is exempt if the debtor takes the homestead exemption.

New York law provides many exemptions for specific categories of personal property. Thus, $600 of a checking account’s or a savings account’s balance is exempt. And items that the debtor reasonably needs for work, such as a musical instrument or power tools, are exempt up to $3,300. But exemption amounts can change, so someone considering bankruptcy should look up the current amounts or consult an attorney.

Luxury goods of all kinds are likely to be lost in bankruptcy, including boats, furs, and expensive jewelry, because their exemption amounts are small.

The Debtor's Car:

New York law usually protects a bankruptcy petitioner’s car from being sold. A petitioner who can keep making the payments on an auto loan or auto lease may continue to do so. And if a debtor owns her car outright and it is worth less than $4,425 ($11,025 for a disabled person), she can keep it. Even if a car is worth more than the official limit, the trustee may let the debtor keep it.

The Debtor's Home:

New York allows a $165,550 exemption for a debtor’s home, and twice that amount for a couple in bankruptcy. That means that if a person’s debts are large and the equity in her home exceeds the exemption amount, filing for chap. 7 bankruptcy may endanger her home. Anyone in that position should consult an attorney before filing for bankruptcy.

Investment real estate does not come under the homestead exemption.

Pensions and Social Security:

A 401k plan is exempt from being seized by a bankruptcy trustee to pay the petitioner’s debts, as are Social Security (including SSDI) and pension income. Local public-assistance payments, crime-victim compensation, workers compensation, unemployment-insurance benefits, and veterans benefits are exempt. But other investment accounts are not, and may be lost.

Income:

Anyone who files for bankruptcy and is receiving alimony, child support, or maintenance payments ordered by a court, does not lose the payments in a chap. 7 or chap. 13 bankruptcy. Some income earned immediately prior to filing bankruptcy is also exempt.

Wildcard Exemptions:

New York offers a blanket exemption of up to $1,100 for personal property for most individuals who do not take the wildcard exemption. The exemption can also be up to $11,625 of a person’s unused homestead exemption. A bankruptcy attorney can explain how to use the wildcard exemption.

Many exemptions have not been covered in this overview. Because there are so many variables in a bankruptcy case, a person can almost always save time and money by discussing the exemptions that she is entitled to with a bankruptcy lawyer. Attorney Stephen A. Katz is available for such a consultation, at no cost and in confidence.

Contact me today to discuss how New York and federal bankruptcy may apply to your individual situation.

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