DEBTOR’S DILEMMA

Do You Qualify to File Chapter 7 Bankruptcy?

Not everybody can, do you?

In 2005, the Republican Congress and President Bush passed sweeping new changes in the US. Bankruptcy Laws. Under the old rules, just about anyone who wanted to file Chapter 7 Bankruptcy in New York could do so no matter what their income was.

The new law set income caps on those who qualify. The debtor’s income must be at or below the mean income. The US Bureau of Labor Statistics issues annual schedules of mean income by region and city, and family size.

The mean income for an individual, living alone in New York City is approximately $46,000, whereas the mean income for a family of four (4) living in Long Island is approximately $82,000.

If your income is above the mean income, you could still pass the “Means Test”, and could qualify under Chapter 7 bankruptcy.

The “Means Test” is a 12 page form. You list both your monthly income and “necessary and deductible” monthly expenses over a six (6) months period. If your “qualifying” overall “expenses” exceed the mean “expenses”, then you could and will “pass” the Means Test with an elevated income.

Not all “expenses” are acceptable in the means test calculation. For example, you may not include income support payments for an elderly parent, not living in your household, or non-court order child support, or expenses that are deemed non- essential or luxury items.

However, “high” rent or mortgage payments, student loan payments, child education expense and any medical expenses for members of the household are acceptable.

An experienced bankruptcy lawyer or paralegal will know how to include all acceptable “expense” to ensure that a debtor who “legally” qualifies under the new rules will pass the “Means Test”, even if that individual has a “high” income. Do not be discouraged, you may qualify for Chapter 7 Bankruptcy in New York even with your present income. After all, most people who are considering bankruptcy have expenses that exceed their income.

For any assistance in this regard, please contact Jeffrey Weinstein Bankruptcy Attorney, on 212-693-3737

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.