Which bankruptcy exemptions apply in NYC?

One of the most important topics to consider in consumer bankruptcy are exemptions.  Exemptions are important because they allow us to keep our valuables.  If you could sell an asset (any tangible or intangible property) and make a profit, that profit would be considered your equity in the asset.  By exempting the equity in something, the debtor (person filing for bankruptcy) will be allowed to keep the asset.  Let me provide a few examples:

Lets say you have a car worth $3,000 and you own it outright.  Your equity would be $3,000.  We can use either the New York motor vehicle exemption of $4,000 or the Federal exemption of $3,675 to keep the car.  There would still be money left over to keep equity in another vehicle.

Now assume your car is worth $10,000 and you own it free and clear.  In this case you have $10,000 of equity in the car.  We would need to use 2 exemptions, your car exemption and what is called the wildcard exemption to keep your car.

  1. If you have a car worth $20,000 but it is financed and you owe $20,000 to a financing company you do not need to exempt it because you have no equity in the car.

For a detailed look at the different exemptions available in New York please visit: http://midtownbankruptcy.com/a-comparison-of-new-york-and-federal-asset-exemption-laws/

Exemption caveats:

  1. If a married couple files together and they both own an asset, the exemption amount can be doubled.
  2. Exemptions can be “stacked” or used in conjunction with other exemptions when one exemption is not sufficient to fully exempt an asset.
  3. Tax refunds that have not yet been received can be exempted.
  4. Rent stabilized leases cannot be exempted.
  5. Only one exemption scheme can be used (Federal or New York State) but the choice can be changed while the case is pending.

Exemption planning:

Exemption planning is very important prior to filing for bankruptcy.  This can be very tricky but if done properly it can minimize the plan payments in a Chapter 13 bankruptcy case or risk of loss in a Chapter 7 bankruptcy.  Similarly, it is very important to make sure that no assets, money or valuables are given or transferred to anyone before the bankruptcy filing.  This can be considered a “fraudulent transfer”.  In New York when something is transferred to another person within 6 years of the bankruptcy filing date it may be a fraudulent transfer.  If a trustee or other party can prove that the debtor transferred the property with the intent to hinder, delay or defraud creditors problems can arise.  Lets look at an example.

  1. John has $20,000 in his bank account in January 2013.  He intends on filing for bankruptcy in February 2013.  John transfers the $20,000 to his mother to keep the money out of the estate.  A fraudulent transfer has occurred and the trustee may sue John’s mother for $20,000.
  2. John’s mother gives him $20,000 in January 2012.  John intends on filing for Bankruptcy on February 2013.  John gives the money back to his mother and then files for Bankruptcy.  This is also a fraudulent transfer and the trustee may sue John’s mother for the $20,000.

As you can probably see pre-bankruptcy exemption planning can be very complicated.  It is not something that a debtor should do without the advice of an attorney.  There are serious consequences, but if done carefully, property can be saved that would have otherwise been sold in Bankruptcy.  As of today, my office has never lost property that it did not intend to in a bankruptcy proceeding.

If you would like a free consultation regarding Bankruptcy contact my office at 212-244-2882 anytime.