Rochester Bankruptcy and Debt Relief » exemption

Changes to New York’s Bankruptcy Exemptions

alexkorotkin — Tue, 28 Dec 2010 01:52:01 +0000

Back in July I have written about a pending bill which would have changed New York’s bankruptcy exemptions and allowed debtors to use the current federal exemptions or the exemptions in New York Law. At the time, it was impossible to predict whether the bill would ever become law.

On December 23, 2010, the bill was signed into law and will become effective in 30 days. This is the biggest change in New York’s bankruptcy exemptions in years, and will make a tremendous impact on the debtors filing both Chapter 7 Bankruptcy and Chapter 13 Bankruptcy.

Homestead Exemption Increases to $75,000 per person for those in Rochester and Western New York

Right now each homeowner can protect only $50,000 worth of equity in a house. However, for those living in Rochester and Western New York Counties, that amount will increase to $75,000. Since a married couple can combine their exemptions, that means that a couple will be able to protect a$150,000 worth of equity in their home.

This will enable almost any typical Rochester middle class family to file bankruptcy to eliminate their credit card debts while protecting their home. In my Rochester, New York, bankruptcy practice, I periodically meet with homeowners who are forced to file for Chapter 13 Bankruptcy instead of Chapter 7 Bankruptcy because they have too much equity in their homes. Now, almost everyone will be able to seek Chapter 7 Bankruptcy relief and keep and protect their homes.

Amounts for Almost All Other New York’s Exemptions Categories Are Being Increased and New Categories Are Being Added

The new law also increases the exemptions for many other assets such as cars, and adds some new categories like home computers and vehicles for the handicapped.

Comparison of New York’s Old and New, 2011 Bankruptcy Exemption Statutes

Existing New York State Bankruptcy Exemptions

NEW New York State Bankruptcy Exemptions

Homestead Exemption (note: this can be combined for married couples filing jointly, who own the real estate together)

$50,000

Homestead Exemption (note: this can be combined for married couples filing jointly, who own the real estate together)

$150,000 for property in the downstate New York (Counties of Nassau, Suffolk, Kings, Queens, Bronx, Richmond, Rockland, Westchester and Putnam)

$125,000 for property in the Counties of Dutchess, Albany, Columbia, Orange, Saratoga and Ulster

$75,000 for all other counties

Motor Vehicle

$2,400

Motor Vehicle

$4,000

Motor Vehicle equipped for use by a disabled person (new category)

$10,000

Cash Exemption if Homestead Exemption is taken

None

Cash Exemption if Homestead Exemption is taken

$1,000. (Note: New exemption. Can also be used for personal property. However, the Federal Exemption is much greater and allows debtors to protect much more in appropriate situations.)

Jewelry and Art

a wedding ring

a watch worth up to $35

Jewelry and Art

a wedding ring

a watch, jewelry and art worth up to a total of $1,000 (Notes: New exemption. This will make it much more difficult for trustees to seek payment for engagement rings)

Tools of Trade (these are the working tools and implements that are necessary to carry on one’s business)

$600

Tools of Trade (these are the working tools and implements that are necessary to carry on one’s business)

$3,000

Aggregate Individual Bankruptcy Exemption for Cash, Household Goods and Clothing

$5,000

Aggregate Individual Bankruptcy Exemption for Cash, Household Goods and Clothing

$10,000

The New and Increased Exemptions Will Benefit Future Bankruptcy Debtors

Not only will more consumers be able to file for Chapter 7 Bankruptcy, but it will also help those debtors filing Chapter 13 Bankruptcy since they may be paying substantially less through their monthly Chapter 13 plan. In addition, existing Chapter 13 Bankruptcy debtors may be able to convert their cases to Chapter 7 and eliminate all future monthly payments.

I have attached a copy of the actual bill here.

If you are contemplating filing Chapter 7 Bankruptcy or Chapter 13 Bankruptcy, or are dealing with debt problems in Western New York, including Rochester, New York, Canandaigua, Brighton, Pittsford, Penfield, Perinton, Fairport, Webster, Victor, Farmington, Greece, Gates, Hilton, Parma, Brockport, Spencerport, LeRoy, Chili, Churchville, Monroe County, Ontario County, Wayne County, Orleans County, Livingston County, and being harassed by bill collectors, and would like to know more about how bankruptcy may be able to help you, contact me today by phone or email to schedule a FREE initial consultation with a Rochester, NY, bankruptcy lawyer.

Upcoming Changes to New York’s Bankruptcy Exemptions

alexkorotkin — Sat, 31 Jul 2010 21:49:32 +0000

As readers of this blog know, if a debtor is filing for either Chapter 7 Bankruptcy or Chapter 13 Bankruptcy in New York, New York’s bankruptcy exemptions will apply. Unfortunately, those exemptions have not been updated in quite some time and are very limited as far as the values of protected assets is concerned.

There is a bill pending in New York State’s legislature that would substantially change the value of assets that could be protected in bankruptcy by changing the figures included in the Debtor and Creditor Law and CPLR which are the basis of those exemptions.

Specifically, this bill would increase the level of certain exemptions from the satisfaction of a money judgment. In addition to the increases, it would add one computer, one cell phone and one motor vehicle worth up to $4,000 to the list. If such vehicle was equipped for use by a disabled person, the limit would be $10,000. The money judgment exemption for the motor vehicle would not apply if the debt enforced is for child support, spousal support, maintenance or alimony.

It would increase the homestead exemption value of a home under Section 5206 of the CPLR from $50,000 to: $150,000 for the counties of Kings, New York, Queens, Bronx, Richmond, Nassau, Suffolk, Rockland, Westchester, and Putnam; $125,000 for the counties of Dutchess, Albany, Columbia, Orange, Saratoga, and Ulster; $75,000 for the remaining counties in the state.

It would also amend Subdivision I of Section 282 of the Debtor and Creditor Law to increase from $2,400 to $4,000 the exemption for one motor vehicle in bankruptcy. If such vehicle was equipped for use by a disabled person, the limit would be $10,000 in bankruptcy. The bill would amend section 283 of the debtor and creditor law to increase the amount of the aggregate individual bankruptcy exemption from $5,000 to $10,000.

The bill would add a new section 285 to the Debtor and Creditor Law to permit debtors to choose either the current federal exemptions or the exemptions in New York Law. The New York State exemptions are listed in Debtor Creditor Law Art 10-A, Sections 282 and 283. Federal exemptions are enumerated in 11 U.S.C. 522(d). It will apply a Cost of Living Adjustment to be published by the New York Banking Department for the applicable exemptions in sections 5205 and 5206 of the CPLR and Section 282 and 283 of the Debtor and Creditor Law.

If those proposed amendments pass into law, the debtors living in Rochester, and Western New York, would be able to protect an additional $25,000 in home equity per filer and also benefit from an increase in the value of vehicle exemption.

More significantly, the debtors will be able to chose between the New York exemptions or the Federal exemption limits. At this time, New York does not allow debtors to make this choice. The ability to utilize federal exemptions will help those debtors who do not own a home more than anything else, because there is a wildcard exemption under Federal Rules. The wildcard exemption, 11 U.S.C. 522(d)(5), typically allows the debtor to exempt a substantial amount of cash, which is presently limited under New York’s exemptions to $2,500.

Bankruptcy and Personal Injury Lawsuits

alexkorotkin — Sun, 18 Apr 2010 00:21:37 +0000

Periodically I meet with debtors who either have a personal injury law suit pending, or may have a potential personal injury case. Personal injury lawsuit issues can complicate a bankruptcy since there are limitations on the debtor’s ability to receive a personal injury award, as well as different procedural hurdles imposed by the bankruptcy code.

Initially, personal injury lawsuits and causes of action are assets of Chapter 7 Bankruptcy estate. Under New York’s bankruptcy exemptions, the debtor can exempt the first $7,500 in net proceeds, but anything over and above that belongs to the bankruptcy estate and would be administered by the bankruptcy trustee. Since personal injury lawsuit or causes of action are assets, it is critical that the bankruptcy lawyer includes the debtor’s personal injury lawsuit or cause of action in the bankruptcy petition. If the debtor fails to include a potential cause of action in the bankruptcy petition, that may cause a dismissal of the personal injury action. According to New York cases, if a plaintiff in a personal injury lawsuit filed a Chapter 7 Bankruptcy petition but failed to list a potential cause of action for personal injuries, then the plaintiff lacks standing to bring the personal injury action.

If the personal injury case or cause of action is included in the petition, the bankruptcy trustee will decide whether the case is valuable enough to administer. The bankruptcy lawyer is expected to provide the trustee with copies of the pleadings. Most trustees will consider the right to sue for a relatively small injury as being of “inconsequential value to the bankruptcy estate” and may decide to abandon the trustee’s interest in the cause of action. Generally, if a personal injury case will not result in any significant non-exempt recovery, then the trustee will not care about administering it. If the trustee determines that the case has value in excess of the exemption, he may want to administer the personal injury claim as an asset of the bankruptcy estate.

The Bankruptcy Code requires that all attorneys who render services to a debtor must be approved by the court. A trustee may employ as special counsel under a contingency fee arrangement, any attorney who has represented the debtor in pre-petition litigation, when it is in the best interests of the bankruptcy estate and the attorney has no interest adverse to that of the debtor or the estate. Theoretically, the trustee can hire any attorney of the trustee’s choosing to represent the debtor in the personal injury lawsuit, and can even take the case away from the existing personal injury attorney.

The automatic bankruptcy stay imposed by Section 362 of the Bankruptcy Code does not stay any actions brought by the debtor. The automatic stay only acts to stay actions brought against the debtor including cross-claims, counter-claims and third-party claims.

The greatest unknown in a personal injury case filed by the bankruptcy debtor, is what interest the bankruptcy trustee will take in the case. Debtor’s bankruptcy attorney would do well to contact the trustee at the earliest opportunity to get an idea of the trustee’s intentions with respect to the personal injury lawsuit.

If you contemplating filing Chapter 7 Bankruptcy or Chapter 13 Bankruptcy, or are dealing with debt problems in Western New York, including Rochester, Canandaigua, Brighton, Pittsford, Penfield, Perinton, Fairport, Webster, Victor, Farmington, Greece, Gates, Hilton, Parma, Brockport, Spencerport, LeRoy, Chili, Churchville, Monroe County, Ontario County, Wayne County, Orleans County, Livingston County, and being harassed by bill collectors, and would like to know more about how bankruptcy may be able to help you, contact me today by phone or email to schedule a FREE initial consultation with a Rochester, NY, bankruptcy lawyer.

Bankruptcy and Cash in Excess of New York’s Exemption

alexkorotkin — Sun, 11 Apr 2010 01:04:30 +0000

Sometimes clients come to me with while having cash or liquid bank accounts in excess of New York’s $2,500 cash exemption. As a bankruptcy lawyer, it is my job to help the client retain as much value as possible for the fresh start after the bankruptcy. So what can be done without running afoul of the Bankruptcy Code?

Initially, there is a difference between the way this situation is treated in Chapter 7 Bankruptcy and Chapter 13 Bankruptcy. In Chapter 7 Bankruptcy, any cash in excess of the New York’s $2,500 cash exemption is the property of the bankruptcy estate and is no longer the debtor’s property to use. In Chapter 13 bankruptcy, any such funds are still property of the debtor, provided that the debtor’s Chapter 13 plan pays to the creditors a sum equal to the unexempt portion of the cash or other unexempt assets over the plan’s duration. This is also known as the good faith test.

If the debtor will be filing Chapter 7 Bankruptcy, the debtor can spend the money prior to the filing in such way that it would be accepted by the bankruptcy trustee. Some of the things that can be done include the following:

Stock up on groceries
Fix the car
Make a mortgage payment ahead of time
Pay car or homeowner’s insurance
Repay retirement loans
Pay for medical or dental care
Pay delinquent child support or spousal support
Pay for child care
Pay overdue taxes

Having too much cash in a bank account can be a problem for a debtor. Discussing these issues in advance with a bankruptcy lawyer and engaging in bankruptcy planning can preserve the debtor’s cash and help with the future after the bankruptcy. Avoiding problems is the joint responsibility of the debtor and the debtor’s bankruptcy attorney. Timing is critical to minimizing your financial exposure. An experienced bankruptcy attorney can help you maximize the benefits of the bankruptcy laws and navigate around any problem areas.

Top Ten Bankruptcy Myths

alexkorotkin — Sun, 21 Mar 2010 02:37:50 +0000

There are lot of myths and misinformation regarding debtors’ rights to file bankruptcy. In my practice, I see a lot of debtors who seek to file Chapter 7 Bankruptcy or Chapter 13 Bankruptcy, who have heard a lot of rumors and incorrect information with respect to their rights and obligations when they file for bankruptcy relief. The following is a compilation of the typical questions, and correct answers to the questions I frequently hear from the debtors.

1. I will not be able to buy a house for ten years since I will not be able to obtain a mortgage.

Although Chapter 7 Bankruptcy will appear on your credit report for a period of ten years, you will be able to buy a house again much sooner than that, because the bankruptcy is likely to improve your credit rating. Chapter 13 Bankruptcy is likely to improve your credit sooner and is likely to disappear from your credit report much sooner as well.

2. I won’t be able to buy a car for ten years since I will not be able to obtain a car loan.

Although Chapter 7 Bankruptcy is likely to be on your credit report for a period of ten years, you will be able to borrow money to purchase a car again because because the bankruptcy is likely to improve your credit rating.

3. I won’t get a credit card or a good credit score for ten years.

Both Chapter 7 Bankruptcy and Chapter 13 Bankruptcy are likely to improve your credit rating. In my experience, although I do not recommend it, the debtors are able to obtain credit cards again within 1 to 2 years.

4. I won’t be able to get a student loan for myself or my children.

Since guaranteed student loans must be repaid, and cannot be discharged in bankruptcy, therefore, there is little concern that student loans will not be paid back. Any private lender may deny a student loan based on the debtor’s credit score, however most student loans are government backed.

5. My employer will fire me because I filed for bankruptcy.

While bankruptcy information is available as a public record, employer, or prospective employer, is not allowed to discriminate against you based on debtor’s decision to file Chapter 7 Bankruptcy or Chapter 13 Bankruptcy. If a prospective employer asks you for a copy of your credit report, questions you about bankruptcy, most employers are prefer to know that the debtor no longer has any financial issues which may affect work performance. Discharging the debt is preferable to an employer as opposed to a situation where the debtor is receiving phone calls at work from collectors or a credit report that shows a pattern of irresponsibility. Further, in Chapter 7 Bankruptcy, employers are not notified of the filing. In Chapter 13 Bankruptcy, the employer is likely to be aware of the filing since here in Rochester, New York, the Bankruptcy Court requires a wage deduction order that is sent to the debtor’s employer and requires a portion of the wages to be remitted directly to the Chapter 13 Trustee.

6. I don’t qualify for chapter 7 bankruptcy because I own a house.

You can file for a Chapter 7 Bankruptcy even if you own a home. Most states, including New York, allow a homeowner a certain amount of equity in their residence. In New York, pursuant to its homestead bankruptcy exemption, a single filer can have $50,000 worth of equity in their residential property, and joint filers (husband and wife) can have $100,000 worth of equity in their property.

7. I will lose my car if I file for bankruptcy.

If the debtor has a financed car, and can afford the payments, the bankruptcy court will not take away the car, unless the amount of equity in the vehicle is considerably greater than New York’s vehicle exemption. Further, the lender is likely to ask the debtor to reaffirm the car loan. Most Chapter 7 Bankruptcy filers who have car loans, tend to reaffirm them.

8. I am not a citizen, and therefore I can’t file for bankruptcy protection.

You can qualify to file bankruptcy even if you are not a United States citizen. If you have the right to reside in the United States, have a social security number, and have filed income tax returns, you can file for Chapter 7 Bankruptcy or Chapter 13 Bankruptcy protection.

9. Bankruptcy can’t help because I have unpaid federal and state taxes.

Under appropriate circumstances, even taxes can be discharged in Chapter 7 Bankruptcy. Chapter 13 Bankruptcy can reduce debtor’s monthly payment to the IRS or New York Department of Taxation and Finance and allow for payments over the life of the plan, as long as five years, without interest.

10. My creditors tell me they will still sue to recover the money owed to them.

Once the bankruptcy is filed, the automatic stay, imposed by the bankruptcy law, protects you from any further attempts to collect a debt or any pending or future lawsuits. While secured creditors may ask for their property back if you do not continue to make payments, they must seek consent of the bankruptcy court before attempting to recover the property.

Chapter 7 and Chapter 13 Bankruptcy, Recent Move by the Debtor and Applicable State Exemptions

alexkorotkin — Sun, 20 Dec 2009 17:04:20 +0000

Periodically, I see debtors who have moved recently to Rochester, New York, or nearby, from another state who wish to file either Chapter 7 Bankruptcy or Chapter 13 bankruptcy. The critical issue in those situations is to determine what state’s bankruptcy exemption laws, if any, will apply.

Under BAPCPA, which passed in 2005, the initial question is how long the debtor has resided in the present state of residence. If the debtor has lived in the same state for the two years prior to filing, then New York’s exemptions will apply. However, if the debtor has moved to New York from another state during the prior two years, then the following rules will apply.

If the debtor resided in the same state for at least 730 calendar days continuously (two years) prior to the filing of the bankruptcy petition, then the debtor can use that state’s exemptions. If the debtor did not live in the current state continuously for at least 730 days, then the debtor must pick the state in which he lived most of the time during the 180 days prior to the 730 days. In other words, the state that must be selected is where the debtor lived most of the time between 2 and 2 ½ years before filing.

If no state qualifies using the above rules (i.e., the debtor has lived in abroad) or if the 180-day state requires current residency or being a domiciliary to use its exemptions, then the debtor must use the federal exemptions. The default rule will only apply if the debtor did not live in any state during the 180 day period that began 730 days before filing, or if the state requires current residency or domiciliary. Under some circumstances, it is advantageous to the debtor to use the federal exemptions since they are typically more generous than New York’s exemptions.

Social Security Retirement, Social Security Disability and Chapter 7 and Chapter 13 Bankruptcy

alexkorotkin — Sat, 17 Oct 2009 02:17:10 +0000

If you are in debt, does it always make sense to file either Chapter 7 or Chapter 13 bankruptcy? If your only source of income is Social Security or Social Security Disability, you can file for bankruptcy, but it may not be necessary. Because of the exemptions under both federal and New York State law, if your sole source of income is either Social Security Retirement or Social Security Disability, you are generally considered to be judgment proof and your income is exempt from garnishment or other collections actions by the creditors. While your creditors still have the right to sue you and obtain judgments, they are not likely to be able to enforce them against your income or any bank accounts that contain solely the money from either Social Security Disability or Social Security Retirement. At the same time, the debtor may still have other assets, either personal or real property, that a creditor may reach once it obtains a judgment.

Even if you are judgment proof, you may still need to file a Chapter 7 or Chapter 13 bankruptcy. If you have secured debt, such as a mortgage or car payment, and you are behind on your payments, Chapter 13 may give you the ability to bring these secured debts current, while still discharging most or all of your revolving credit debt, personal loans or medical debt. Another benefit of filing for bankruptcy is that either Chapter 7 or Chapter 13 bankruptcy will stop harassment by the creditors.

If you are dealing with debt problems in Western New York, including Rochester, Canandaigua, Brighton, Pittsford, Penfield, Perinton, Fairport, Webster, Victor, Farmington, Greece, Gates, Hilton, Parma, Brockport, Spencerport, LeRoy, Chili, Churchville, Monroe County, Ontario County, Wayne County, Orleans County, Livingston County, and being harassed by bill collectors, and would like to know more about how bankruptcy may be able to help you, contact me today by phone or email to schedule a FREE initial consultation with a bankruptcy lawyer.

Chapter 7 and 13 Bankruptcy and Inheritances

alexkorotkin — Mon, 12 Oct 2009 02:16:57 +0000

When a debtor files for bankruptcy under Chapter 7 or Chapter 13, all of the debtor’s assets pass under control of the bankruptcy trustee. The reason for this transfer of control is so the debtor will be able to discharge their debts and receive the benefit of automatic stay. As I discussed previously, once a bankruptcy is filed, a bankruptcy estate is created by operation of the Bankruptcy Code which states that the bankruptcy estate is “comprised of all the following property, wherever located and by whomever held: (1) Except as provided in subsections (b) and (c)(2) of this section, all legal or equitable interests of the debtor in property as of the commencement of the case.” 11 U.S.C. § 541(a)(1) (2008). Under the definition of the property of the estate, it also includes any interest in property that would have been property of the estate if such interest had been an interest of the debtor on the date of the filing of the petition, and that the debtor acquires or becomes entitled to acquire within 180 days after such date. This particular provision dealing with assets acquired within 180 days addresses inheritances and bequests. Therefore, if the debtor receives an inheritance, or a bequest, within 180 days of the filing for bankruptcy, that inheritance or bequest, become property of the bankruptcy estate.

Since a typical Chapter 7 or Chapter 13 bankruptcy runs its course within less than 180 days, a bequest or an inheritance may come within 180 days of the filing, but after the debtor receives his or her discharge or a confirmed plan. Under those circumstances, the debtor has an absolute obligation to notify the bankruptcy trustee of the bequest or inheritance. Once the money is actually received, the debtor must turn over the funds to the trustee. Here in Rochester, Chapter 7 and 13 trustee specifically tell debtors during 341 meetings that any inheritance or bequest received within 180 days of the filing must be disclosed to the bankruptcy trustee. While most of the time, debtors can protect their personal or real property through the use of exemptions and pre-filing planning, inheritances or bequests do not provide this opportunity.

Your Homestead Exemption in Chapter 7 Bankruptcy

alexkorotkin — Mon, 20 Jul 2009 01:08:52 +0000

In New York, the debtors can protect the equity in their residences by utilizing their homestead exemption. Equity is typically defined as the difference between the market value of the property and the debt owed on it. The homestead exemption is one of the most ways to protect your biggest asset, your home, from the claims of your creditors. In New York, an individual debtor can protect up to $50,000 of equity in home by filing Chapter 7 bankruptcy, $100,000 if the debtor spouses are filing jointly. In order to take the benefit of the homestead exemption, the property has to be your residence when you file the bankruptcy.

I am often asked if the debtor can lose the benefit of the homestead exemption. My usual response is that the debtor could lose the benefit of the homestead exemption only in extreme circumstances. Typically, in order to lose the benefit of the exemption, the debtors must engage in fraudulent conduct or a clear showing of bad faith. Further, the wrongful conduct must be related to the homestead exemption.

If, for example, you own a $300,000 investment property in addition to your $100,000 residence, but you wrongfully claim in your bankruptcy petition that you live in the $300,000 property, you may lose the right to claim the exemption. As long as the debtor does not lie or attempt to hide the property from the bankruptcy court, the debtor will not lose the homestead exemption.

Workers Compensation and Chapter 7 Bankruptcy

alexkorotkin — Sat, 30 May 2009 20:32:55 +0000

If you file a Chapter 7 bankruptcy, what happens if you have a pending workers’ compensation claim? Generally, if you file for bankruptcy in New York, any money received as certain public benefits is usually exempt. However, workers’ compensation claims can result in significant lump-sum awards and a bankruptcy trustee may file an objection to the debtor claiming such award as exempt.

Here in Rochester, Judge Ninfo dealt with a similar situation in In re Herald, and his decision resolved these issues in Western New York. In order to resolve this issue in favor of the debtor, Judge Ninfo had to find that worker’s compensation award fell within the scope of §282.2(c) of New York’s Debtor Creditor Law, which exempts benefits received as a result of “disability, illness or unemployment benefit.”

After analyzing the legislative history of §282 of New York’s Debtor Creditor Law, Judge Ninfo concluded that the legislative intent was to exempt workers’ compensation proceeds. He further noted that in some situations this may give a debtor a head start, as opposed to a fresh start, where the debtor will receive a significant award after the bankruptcy filing, but found that any such award to be exempt nonetheless.

Thus, if you have a workers’ compensation case pending or your are receiving worker’s compensation payments, you can file a Chapter 7 bankruptcy and keep the award when you receive it. It is important to tell your bankruptcy lawyer about it in advance, so that the workers’ compensation claim is listed as exempt on your bankruptcy petition.