What is the Homestead Exemption in Bankruptcy in New York City?
The homestead exemption allows our clients in New York City to save a home they own and protect its equity when filing bankruptcy. In a Chapter 7 bankruptcy the homestead exemption will prevent seizure of your home, and in Chapter 13 the homestead exemption will come into effect by reducing the amount you must repay to your creditors. This exemption can only be used for your primary residence, but this may be a house, condo or even mobile home in New York. In New York, Queens, Bronx, Nassau, Rockland, Westchester, Richmond, Suffolk and Putnam counties the homestead exemption amount is $165,500 for an individual filer. If you are in Orange, Saratoga, Ulster, Dutchess, Columbia or Albany county the homestead exemption is $137,950, and for any other counties in New York State the homestead exemption is only $82,775.
This is basically how the homestead exemption works. In a Chapter 7 bankruptcy the equity in your home will be considered an asset by the bankruptcy trustee like any other asset in your estate. The trustee could seize your house and sell it to repay your creditors if it weren’t for the homestead exemption. In a Chapter 13 the homestead exemption will protect significant amounts of home equity that would otherwise go to your creditors. Fortunately since the homestead exemption is so generous in New York City most of our Chapter 13 client’s equity is protected in full if they decide to file bankruptcy. If you are married and filing bankruptcy with your spouse this amount can be also be doubled to a staggering $331,000 in New York City.
When you file bankruptcy you must choose which set of exemptions to go with, either the New York State exemptions or the Federal exemption scheme. You can’t mix and match elements of the two and with either scheme if you use the available homestead exemption you will not be able to use a wildcard exemption. Wildcard exemptions are often used to protect cash, stocks, non qualifying retirement accounts and other non-exempt assets. Your attorney will consider your overall financial situation when advising you on which exemptions to use.
Not all trustees will automatically try to sell a home, because even with significant equity they won’t stand to make a fortune after the broker’s fees, transfer fees, taxes, and closing costs. A trustee has to pay these costs like anyone else and they will significantly lower the amount of equity remaining for the purposes of bankruptcy. Imagine you own a condo worth $500,000 with a mortgage of only $100,000 going into your bankruptcy. You have $400,000 in equity. If you are married then $331,000 of this is exempt and goes back to you and your spouse. The $69,000 remaining is going to be hit hard by taxes, fees and broker costs. In this scenario the trustee might make $50,000 with a lot of effort. If you come to them and say you will instead give them $30,000 to not sell the house then they will often make a deal and walk away.
There are some game changers to the homestead exemption if you have been convicted of a felony, or if you have recently purchased a property or recently improved a property. You can’t buy a home for $165,500 today and file bankruptcy tomorrow for example. Nevertheless, a very generous homestead exemption gives our clients in New York City a real advantage over bankruptcy filers in other jurisdictions. Whether you file for Chapter 7 or Chapter 13 will depend on your overall financial situation, but if you own a home you are ahead of the game if you live in New York City and need to file bankruptcy.
If you are having trouble paying your bills already then don’t let things get worse. You can stop the bleeding. Not every debtor should file bankruptcy but if you are having trouble financially already it won’t hurt to get the free advice you need. Bankruptcy can protect your home, and eliminate the toxic debt that may be keeping you from making ends meet, but you need the help of a professional. If you have questions about bankruptcy in New York City please contact the Law Offices of William Waldner online or at 212.244.2882 to arrange a free bankruptcy consultation today. We only practice bankruptcy law, and have a 99% Chapter 7 bankruptcy discharge record in New York City as of 8/31/16.
**** DISCLAIMER: This article is intended for educational purposes only. By reading no attorney-client relationship has been created. Prior results do not guarantee a similar result for future clients.