Considering Filing for Bankruptcy in New York?
Local Bankruptcy Lawyers Explain Your Options and Exemptions
In most cases, all it takes is one catastrophic event or one turn of bad luck to take you from financially stable to drowning in unmanageable debt. Perhaps you suffered an injury or illness that left you with crushing medical debts. Maybe you lost your job or made an investment that failed to pay off. Whatever the reason, if you are struggling with overwhelming debt, then filing for bankruptcy may be a viable option to help you reclaim control of your finances. Despite the stigma sometimes associated with bankruptcy, this process can help you end creditor harassment, save your house from foreclosure and discharge certain debts that you cannot repay. The details of the process will depend on your circumstances and the type of consumer bankruptcy you choose to file. However, the end goal is still the same: eliminate your debts and give yourself a fresh start financially.
There are two main types of consumer bankruptcy: Chapter 7 and Chapter 13. Although either can relieve you of unwanted debts, they work very differently. An experienced New York bankruptcy lawyer can offer you advice on which choice is best for your unique situation, and may be able to offer you bankruptcy alternatives as well. Below, local attorneys explain the basics of both types of bankruptcy and list the exemptions you may be able to use in your case.
What Is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy involves a repayment plan, allowing you to keep all of your assets, and is usually better for people who have a steady income. Important characteristics of Chapter 13 include:
- Income requirements and debt limits. Your eligibility for Chapter 13 debt relief typically depends on whether you have a steady monthly income that is sufficient to meet your expenses as well as the requirements of a payment plan. Additionally, you cannot file Chapter 13 if your debts exceed a certain amount, though the qualifying limits change yearly.
- Repayment plan. When you file for Chapter 13 bankruptcy, you must detail how much you owe and how much you can pay back each month. You may have some flexibility with this plan, but you must usually pay a substantial portion of your disposable income each month. The court will review your plan to see if it is fair and workable. If the court accepts your plan, then you must remain current with your payments throughout the bankruptcy process. You make your monthly payments to a bankruptcy trustee, who in turn pays your creditors in order of priority.
- Typically lasts three to five years. Unlike Chapter 7, which is over quickly, the Chapter 13 repayment plan usually lasts between three and five years. However, you may keep all of your property.
- Discharges unsecured debts and allows you to manage secured debts. At the end of the bankruptcy process, your remaining unsecured debts will be discharged. Additionally, the repayment plan can allow you to become current on certain debts, like your mortgage, which may survive.
- Certain debts survive Chapter 13 bankruptcy. Some debts are ineligible for discharge, including certain back taxes, student loans and child support payments. However, you must be current with your payments on these debts by the end of Chapter 13 bankruptcy.
What Is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy is sometimes called “liquidation bankruptcy,” and is usually best for low-income individuals who have few assets. Important characteristics of Chapter 7 bankruptcy include:
- The means test. To be eligible to file this kind of bankruptcy, you must pass the “means test,” which compares your monthly income to the average income of a family of the same size. If your income does not exceed the median income for a similar household in your state, then you automatically qualify for Chapter 7 relief. If your income is more than the median, then you still may be eligible for Chapter 7, depending on the circumstances.
- Liquidation of non-exempt assets. When you file Chapter 7 bankruptcy, the court appoints a trustee who examines your finances and assets. New York bankruptcy laws allow you to automatically keep certain property (see below). Depending on your situation, most or all of your property may be exempt. However, the trustee will liquidate or sell all non-exempt property, and use the money to pay a portion of your outstanding debts.
- Typically lasts three to six months. The entire Chapter 7 bankruptcy process typically lasts between three to six months.
- Discharges unsecured debts. At the end of the bankruptcy process, the court will grant you a discharge. This effectively erases all outstanding unsecured debts – you will not ever have to pay them back. However, you cannot file for Chapter 7 bankruptcy again for eight years.
- Certain debts may survive Chapter 7 bankruptcy. While bankruptcy can wipe away much of what you owe, certain debts cannot be discharged. Secured debts, such as a mortgage or car loan, cannot be discharged unless you also surrender the property. Additionally, overdue child support payments, certain types of back taxes and student loans are ineligible for discharge.
What Are the New York Bankruptcy Exemptions?
When you file for Chapter 7 bankruptcy, New York bankruptcy law allows you to exempt certain assets from liquidation. This means that you can keep a certain amount of property and money; the bankruptcy trustee cannot liquidate it to pay your debts. The New York bankruptcy exemptions include:
Homestead. Real property, including mobile home, condominium, or co-op, up to $82,775, $137,950, or $165,550, depending on the county.
Personal Property. Clothing, furniture, refrigerator, TV, radio, sewing machine, security deposits with landlord or utility company, tableware, cooking utensils and crockery; stoves with fuel to last 120 days, health aids (including service animals with food), church pew or seat, wedding ring, bible, school books, pictures; books up to $550; domestic animals with food to last 120 days and up to $1,100; wedding ring, jewelry, art, watch to $1,100; spendthrift trust fund principal; 90% of trust fund income if not created by debtor; college tuition savings program trust fund; recovery for injury to exempt property up to 1 year after receiving. Exemptions cannot exceed a total of $11,025 including tools of trade and limited annuity.
Burial plot up to 1/4 acre without a structure on it.
Savings and loan savings up to $600.
Motor vehicle up to $4,425 ($11,025 if equipped for disabled person); lost future earnings recoveries needed for support; personal injury recoveries up to 1 year after receipt; wrongful death recoveries for a person you depended upon for support.
Personal injury recoveries to $8,275.
Cash (including savings bonds, tax refunds, bank & credit union deposits) to $5,525 or, if debtor does not use homestead exemption, whatever is left of the $11,025 personal property limit.
Wages. 90% of earned but unpaid wages received within 60 days of filing for bankruptcy; 90% of earnings from milk sales to milk dealers; 100% for a noncommissioned private, officer or musician in the U.S. or N.Y. state armed forces. In re Wiltsie, 463 B.R. 223 (Bankr .N.D. N.Y. 2011). Wages exempt from installment payments while on public assistance.
Pensions. Tax exempt retirement accounts (including 401(k)s, 403(b)s, profit-sharing and money purchase plans, SEP and SIMPLE IRAs, and defined benefit plans).
IRAS and Roth IRAs up to $1,283, 025.
Tools of Trade. Professional furniture, books, instruments, farm machinery, team and food for 60 days, up to $3,300 total; arms, swords, uniforms, equipment, horse, emblem and medal of a military member.
Alimony and Child Support.
Debtor & Creditor. Annuity contract benefits due to the debtor if he or she paid for the contract up to $5,000, if purchased within 6 months of filing for bankruptcy and not tax-deferred.
Estates Powers & Trusts. Life insurance proceeds left at death if policy prohibits use to pay creditors.
Disability or illness benefits up to $400 per month; life insurance proceeds, dividends, interest, loan, cash, or surrender value if beneficiary is not the debtor or if the debtor’s spouse has taken out the policy.
Partnership. Business partnership property.
Wildcard. $1,100 of personal property, bank accounts, or cash.
What Are the Federal Bankruptcy Exemptions?
Although most states require bankruptcy filers to use state-specific bankruptcy exemptions, New York law allows you to use either state or federal exemptions. However, you must choose one or the other – you cannot use parts of both. If you choose to use federal exemptions when you file for bankruptcy, then you may keep:
- $23,675 of equity in your primary home. This is the homestead exemption; you can use it to protect residential real estate as long as you live there. However, this does not extend to investments in rental properties.
- Your vehicle up to a value of $3,775.
- Jewelry valued up to $1,600.
- Household items worth up to a total of $12,625, as long as no single item is worth more than $600. This includes furniture, appliances, clothes, animals, books, etc.
- Tools for your work, including books, valued up to $2,375.
- A total of $12,625 in loan value, dividends or life insurance policy interest.
- All health aids.
- Reasonable spousal and/or child support payments.
- All Social Security, unemployment, veteran’s and/or disability benefits.
- Personal injury compensation up to $23,675 (economic damages only).
- All retirement accounts. However, IRAs may only be exempt up to $1,283,025.
- Up to $1,250 plus the unused portion of your homestead exemption up to $11,850. This is the wildcard exemption; you may use it to protect any kind of property or liquid assets. For example, you may use some of your wildcard exemption to protect the rest of your car, if its value exceeds the allotted $3,3775.
The federal government adjusts the limits of these bankruptcy exemptions every three years; the next adjustment should occur in April of 2019.
More Bankruptcy Questions? Ask the Lawyers or Find a Local Attorney
The bankruptcy process can be complex, so if you have questions or concerns about some aspect of New York bankruptcy law, then feel free to ask the lawyers. Alternatively, if you need debt relief now, then consult our local listings to find a qualified attorney in your area.