When a resident of Rockland County contemplates filing a bankruptcy petition, one of the first questions asked is whether creditors can seize the person's residence, automobiles, retirement plans or other assets. In most cases, debtors will not be required to surrender their personal assets in a Chapter 7 bankruptcy proceeding. Assets subject to this protection are generally called "exemptions." The rules governing the designation of exempt assets are complex, but this post will provide a useful overview.
New York and every other state in the union have laws that identify the types of assets that can be declared exempt from Chapter 7 bankruptcy. The Bankruptcy Act itself likewise contains a list of allowable exemptions.
Exemptions under New York law include the following:
- Clothing and household goods
- Up to $2,500 in cash
- Maintenance or child support owed to the debtor
- The right to receive certain awards and benefits, including Social Security payments and workers' compensation benefits
- Pensions, Keogh Plans, 401(k) plans and annuities
- A motor vehicle worth not more than $2,400 over the balance due on any auto loan
Residences may also be exempt. New York allows an exemption of the debtor's principal residence of not more than $50,000 of equity. If both husband and wife file the petition, this exemption is worth $100,000. While the filing of the Chapter 7 bankruptcy petition halts all foreclosure proceedings, the residence may be lost in a Chapter 7 filing, because the creditor can reinstitute the foreclosure proceeding if the mortgage loan is still in default.
Selecting exemptions is one of the most important steps in any bankruptcy proceeding. However, it is a complex process. It's imperative that the correct exemptions are selected, so that the debtor is able to retain as many assets as possible. By doing so, they can take advantage of the fresh financial start bankruptcy offers.
Source: New York City Bar Association, "Personal Bankruptcy: Is It Right for You?", accessed on April 2, 2018