New York Bankruptcy Exemptions and Law
New York Federal Courts are Open. New York's four district bankruptcy courts are all open but with restricted building access. This means that most court hearings are being conducted by phone and clerk's offices are recommending that you file electronically, by mail, or by dropbox. Specific information on safety precautions for each district's bankruptcy courts during the COVID-19 emergency is available on their websites.
If you are a New York resident struggling to pay your bills and don't believe your situation will improve, filing for bankruptcy could help. It will give you the breathing room you need by stopping debt collection actions while providing you a roadmap for paying down or erasing your debt.
Bankruptcy cases take place in federal courts and are governed by the U.S. Bankruptcy Code. However, the Code lets states make some of their own rules about which property is exempt from bankruptcy and protected from creditor claims. In other words, exempt property is the property you can keep to help you restart your life after bankruptcy.
New York has created its own exemption rules but also lets you choose the exemptions included in the U.S. Bankruptcy Code if those are more helpful to you. This does not mean you can pick and choose between the New York and federal bankruptcy exemptions for your property. You must pick either the state or federal exemptions for all of your assets.
To understand how the exemption process works in bankruptcy, it is helpful to know there are two kinds of personal bankruptcy:
- Chapter 7 Bankruptcy. Sometimes known as a “liquidation bankruptcy," you can file under Chapter 7 if your household income falls below the median for your state. If you file under Chapter 7, you will turn over all of your non-exempt assets to a bankruptcy trustee who will sell them and use the profits to repay your creditors. It is during a Chapter 7 case that you can use exemptions to protect some of your assets. In return for giving up all of your non-exempt property, you will exit bankruptcy debt-free.
- Chapter 13 Bankruptcy. This is sometimes known as a “restructuring bankruptcy" because it allows individuals with a steady income to rework their debt so it is paid off over three to five years. Chapter 13 payments are made under a court-approved repayment plan that could also relieve you of some of your debt. The most significant benefit of filing under Chapter 13 is that, if you are a homeowner, you can often keep your home.
One important benefit offered by both types of bankruptcy is the automatic stay that will be issued when you file. The stay will stop collection by your creditors, including court cases and foreclosures. The stay gives you some time so that you can resolve your debt problems through the bankruptcy process without worrying about being harassed by your creditors.
Secured vs. Unsecured Debt
If you are thinking about filing for bankruptcy, it is crucial that you know how your assets will be treated in a Chapter 7 or Chapter 13 filing and how much debt you can discharge through bankruptcy. The bankruptcy courts will designate each debt you owe your creditors as either secured or unsecured, and each type of debt is treated differently during the bankruptcy process.
You have unsecured debt when a creditor has no right to seize your property if you fail to pay. Because those creditors hold no collateral for those debts, it is the most likely to be eliminated during bankruptcy. Common examples of unsecured debt are credit card debt, unpaid court judgments, and unpaid medical bills. Some unsecured debt, such as domestic support obligations, must be paid in full by the person filing for bankruptcy.
When you have a secured debt, a creditor has the right to take your property for if you don't pay. The most common types of unsecured debt in personal bankruptcy cases are mortgages, car loans, and property liens.
Filing for Chapter 7 usually eliminates most of your unsecured debt. But creditors who hold secured debt can still seize your property for not making payments. This means that you cannot use Chapter 7 to avoid paying your home mortgage or car loan. To keep your secured property in a Chapter 7 case, you usually have three options:
- Return the property to your lender or creditor. You will lose the property, but you will no longer be required to pay for it since the unpaid balance is usually discharged in bankruptcy.
- Keep the property while still making payments. If the New York exemption is enough to cover your equity and you are up-to-date on payments, you can usually keep the property if you keep making payments.
- Purchase the property outright. Chapter 7 bankruptcy filers are unlikely to have the funds to do this. But if you have the money and the property falls within one of the New York exemptions, this is an option, so long as other requirements are met.
Filing under Chapter 13 lets you create a plan for paying off secured creditors, but your plan will not cover your home mortgage. This means that you will need to continue paying your mortgage during bankruptcy if you want to keep your home. But if you were behind in your payments when you filed, the trustee and your lender can usually work out a repayment agreement. Any unsecured debts you have will be paid with whatever is left over after secured creditors are paid. Once you complete your plan, any unpaid unsecured debt is eliminated.
There are two means tests that will be used to determine whether you can file for Chapter 7 bankruptcy in New York. The first means test is pretty straightforward: If your household income is less than the median household income for New York, you qualify. Census data shows that for a three-person New York family, the median household income was $91,381 as of November 2020.
The second means test requires a review of your income and expenses to learn how much disposable income you had over the past six months. If it is found that you had little to no disposable income during that time, you can file under Chapter 7.
To file under Chapter 13, you cannot have more than $419,275 in unsecured debt and $1.26 million in secured debts. These numbers are updated regularly to reflect inflation.
Filing for personal bankruptcy allows you to start over with a clean slate. New York has provided many helpful exemptions so that you are not restarting without any assets. Essentially, exempt property is the property you get to keep.
New York lets homeowners exempt a certain amount of their equity in real property under its homestead exemption. How large an exemption you will get depends on where you live. Listed below is a breakdown of the exemption amounts by county as of early 2021:
- $170,825 for Bronx, Kings, Nassau, New York, Putnam, Queens, Richmond, Rockland, Suffolk, and Westchester counties.
- $142,350 for Albany, Columbia, Dutchess, Orange, Saratoga, and Ulster counties.
- $85,400 for all other counties.
The homestead exemption can be applied to the equity in your house, condo, mobile home, or co-op that you are using as a residence.
Married couples are allowed to double their homestead exemption because the state lets each spouse claim the full exemption if they both have an ownership interest in the property.
You are allowed to keep up to 90% of the income you were paid in the 60 days before filing for bankruptcy. You can keep the entire amount of court-ordered alimony, maintenance, or child support.
Motor Vehicle Exemption
The state lets you exempt up to $4,550 of your equity in one motor vehicle. If the vehicle is equipped for the use of a disabled person, that rises to $11,375. Should you not use the homestead exemption, you can use the wildcard exemption to protect additional equity in your vehicle.
The wildcard exemption lets you exclude personal property or cash valued at up to $1,150. It cannot be applied to real estate and cannot be used if you use the homestead exemption.
Tools of the Trade Exemption
New York offers an exemption of up to $3,400 for any tools for your profession.
Other Property Exemptions
New York grants an exemption of up to $11,375 for the following items:
- Household Goods:
- Stoves and heating equipment for your home and 120 days of fuel
- Watches, jewelry, and art up to $1,150 in value.
- Cell phones, computers, televisions, and radios
- Sewing machine
- Religious texts
- Family photos and portraits
- School books
- Other books valued at up to $575
- A seat or pew used for religious worship
- Domestic animals and 120 days of food for your family up to $1,150 per person
- Prescribed health aids
- Wedding ring
- Replacement property or damage payments for lost or damaged personal property for up to one year after receiving it.
- Any property held in a spendthrift trust on behalf of the person filing for bankruptcy if they did not create it.
- Arms, equipment, and uniforms used in military service and any military pensions
If you do not take advantage of New York's homestead exemption, you can exempt the smaller of up to $11,375 in cash (minus the above listed other property exemptions taken) or $5,700 in cash.
Exemptions for Pensions and Benefits
The following types of pensions and benefits are exempt from bankruptcy in New York:
- Traditional, simple, and Roth IRAs, as well as Keogh or other qualified retirement plans
- Social Security, disability, unemployment, public assistance, and workers' compensation
- Benefits paid as reparations to a crime victim, wrongful death payments, and up to $8,550 in personal injury payments (not including pain and suffering)
- Crime victim's compensation, local public assistance, and home relief
Exemptions for Damage Awards and Settlements
- Lawsuit awards for stolen, lost, or damaged property for up to one year after the funds were received if you could have claimed an exemption for the property
- Awards for lost future earnings if they were compensation paid for the wrongful death of someone you relied upon for financial support up to the amount reasonably necessary to support you and your dependents
How Do I Start Bankruptcy in New York?
If you are filing for bankruptcy in New York you will need to complete credit counseling within 180 days of filing for either Chapter 7 or Chapter 13 bankruptcy. You may request a 30-day waiver if there are legitimate reasons for not completing counseling before you filed.
If you filing without an attorney, you will start the bankruptcy process by downloading the correct filing form from your district bankruptcy court. The same form is used for either Chapter 7 or Chapter 13 bankruptcy.
The federal courts and New York are divided into four districts, each with its own bankruptcy courts. If you do not know where your nearest bankruptcy court is located, search under “U.S. Bankruptcy Courts" in the U.S. Court Locator.
The Northern District has bankruptcy courts in:
The Eastern District has bankruptcy courts in:
- Central Islip
The Western District has bankruptcy courts in:
- Batavia (unstaffed)
- Mayville (unstaffed)
- Niagara (unstaffed)
- Olean (unstaffed)
The Southern District operates bankruptcy courts in:
- White Plains
It costs $338 to file for Chapter 7 bankruptcy and $313 to file for Chapter 13 bankruptcy in New York. The filing fees will be the same regardless of whether you are filing on your own (known as filing “pro se") or have hired an attorney to represent you. If you cannot afford the filing fee, you can ask to pay in installments over 120 days. You can also seek a fee waiver if your income is less than 150% of the poverty line.
Most bankruptcy filers choose to hire a lawyer to help them navigate the process. While the fees they charge vary widely based on where you live and the specifics of your case, most New York bankruptcy attorneys charge between $1,000 and $3,000 to file cases that do not involve significant assets. Because Chapter 13 proceedings are usually more complicated, attorneys typically charge between $1,500 and $7,500.
Looking for Help Filing for Bankruptcy in New York?
If you are short of money and thinking about filing for bankruptcy, hiring an experienced attorney for help can seem like an unnecessary expense when you have the option of filing on your own. However, bankruptcy is a complex court proceeding and a lawyer will help navigate the process. A local attorney will also ensure that as many of your assets are protected from creditors as possible. Additionally, an experienced attorney will know how to negotiate with creditors to reach a deal that both sides can accept.
An attorney can also offer advice as to whether bankruptcy is really the best solution for your situation. Not everyone who is in financial trouble needs to file for bankruptcy and there are times when an attorney can negotiate with your creditors outside of bankruptcy. If you really do need to file for bankruptcy, an attorney can be an assertive advocate on your behalf throughout the process.
Note: State laws are always subject to change through the passage of new legislation, rulings in the higher courts (including federal decisions), ballot initiatives, and other means. While we strive to provide the most current information available, please consult an attorney or conduct your own legal research to verify the state law(s) you are researching.
New York Bankruptcy Courts
- Northern District of New York: https://www.nynb.uscourts.gov/
- Eastern District of New York: https://www.nyeb.uscourts.gov/
- Western District of New York: https://www.nywb.uscourts.gov/
- Southern District of New York: https://www.nysb.uscourts.gov/