Bankruptcy Update

NY State Doubles Homestead Exemption

Filing a Chapter 7 Bankruptcy in New York has just gotten easier for hundreds of thousands of homeowners in New York. In December 2010, the state increased the homestead exemption from $50,000 to as much as $150,000, per individual, $300,000 per married couple in some New York jurisdictions.

This means that if an individual owns a home or apartment – and the home is his primary residence – he can file Chapter 7 bankruptcy, and he can shelter up to $150,000 ($300,000 for a couple) in homestead equity from creditors. The New York legislature is finally catching up with inflation, although still far behind many other states.

New York has long been deemed a “creditor-bias” state because the exemptions are among the lowest in the Country. Whereas, other states, like Florida in particular is a debtor-friendly state. Florida has an unlimited homestead exemption. A Floridian filing a Chapter 7 bankruptcy may be able to discharge all his unsecured debt, and creditors cannot touch his home, even if it is worth millions of dollars.

In addition the increase in homestead exemption, other increases include raising the vehicle exemption from $2,500 to $4,000.

Thus, contrary to popular belief, you don’t have to be totally broke to file Chapter 7 bankruptcy. You are legally able to claim certain “exemptions”, which allow the debtor, to shelter certain assets from your creditors. The most favorable clause allows a debtor to keep 100% of all retirement accounts, 401K, IRA’s , etc.

Let me illustrate how the NY homestead exemption works. Say you live in New York City, you have a Condo with a FMV (Fair Market Value) of $900,000. You currently have an outstanding principle balance of $600,000 on your mortgage. Together you and your spouse have a combined $300,000 homestead exemption. The exemption covers 100% of your equity in the condo.

Thus, if you file a joint Chapter 7, your Condo is 100% protected from your creditors.

Under the old law, only $100,000 of your equity was protected and $200,000 would be vulnerable if you filed a Chapter 7 Bankruptcy, your creditors could force the sale of your condo to collect up to $200,000 of debts.

For more information on New York exemption or on filing Chapter 7 or 13 Bankruptcy, email your questions at j.weinstein@jlwlawoffices.com or call me at 212-693-3737 for free consultation.