When facing overwhelming debt, many New Yorkers consider filing for Chapter 7 bankruptcy as a way to get a fresh financial start. However, one of the most common concerns is whether they’ll be able to keep their personal belongings and assets. The good news is that in most cases, you can keep all of your property when filing Chapter 7 bankruptcy in New York.
This guide will explore the ins and outs of property exemptions in New York Chapter 7 cases, helping you understand what you can keep and what you might have to give up.
Understanding Chapter 7 Bankruptcy in New York
Chapter 7 bankruptcy, sometimes called “liquidation bankruptcy,” is meant to give debtors a fresh start by wiping out most unsecured debts. In exchange, the bankruptcy trustee has the right to sell non-exempt assets to pay creditors. However, bankruptcy laws provide exemptions that protect certain types and amounts of property from being liquidated.
In New York, filers have a unique advantage: they can choose between the federal bankruptcy exemptions and New York’s state exemptions. This flexibility allows debtors to select the set of exemptions that best protects their assets.
New York State Exemptions versus Federal Exemptions
New York is one of the few states that allows bankruptcy filers to choose between state and federal exemptions. However, you can select only one set of exemptions for your case; you cannot, for instance, choose the federal exemption for your home and the state exemption for your car. This choice can significantly impact what property you can keep in a Chapter 7 bankruptcy. Let’s compare some key exemptions:
Homestead Exemption
This exemption protects your equity in your home up to the following amounts:
- New York state exemption:
- $179,975 for the counties of Bronx, Kings, Nassau, New York, Putnam, Queens, Richmond, Suffolk, Rockland, and Westchester
- $149.975 for the counties of Albany, Columbia, Dutchess, Orange, Saratoga, and Ulster
- $89,975 for the rest of the state’s counties.
- Federal exemption: $27,900.
Motor Vehicle Exemption
- New York: $4,825 ($11,975 if equipped for a disabled person)
- Federal: $4,450.
Personal Property Exemption
- New York: Various limits for different categories (for example, $1,175 for jewelry)
- Federal: $14,875 total for household goods, plus other specific categories.
Retirement Accounts
- New York: Most retirement accounts are fully exempt
- Federal: Most retirement accounts are fully exempt.
Wildcard Exemption
This can be used to protect assets that are not in any other exemption category, or stacked with other exemptions to increase their amount limit.
- New York: $1,175 (only if homestead exemption is not used)
- Federal: $1,475, plus up to $13,950 of unused homestead exemption.
Note that the exemption figures above apply to individual filers. Certain amounts may double if you’re filing jointly with your spouse.
As you can see, the choice between state and federal exemptions can significantly impact what you keep in bankruptcy. For instance, if you own a home in New York City with substantial equity, the state exemptions would likely be more beneficial due to the higher homestead exemption.
How Exemptions Work in Chapter 7 Bankruptcy
When you file for Chapter 7 bankruptcy in New York, you’ll need to provide a detailed list of your assets and their values. The bankruptcy trustee will review this information to determine if you have any non-exempt property that could be sold to pay creditors.
Here’s how the process typically works:
- You file your bankruptcy petition, including schedules listing your assets and claiming exemptions.
- The trustee reviews your paperwork and may ask for additional documentation or clarification.
- If all your property is exempt, the trustee will file a “no asset” report, and your case will proceed without any property being sold.
- If you have non-exempt property, the trustee may seek to sell it (to you or to another) and distribute the proceeds to creditors.
In many Chapter 7 cases in New York, debtors can exempt all of their property, resulting in a “no asset” case where nothing is liquidated.
Strategies for Protecting Your Property in Chapter 7
While exemptions provide significant protection, there are additional strategies you can employ to maximize what you keep in a Chapter 7 bankruptcy:
Choose the Right Set of Exemptions
Carefully compare the state and federal exemptions to determine which set will protect more of your assets. This decision can have a significant impact on what you keep.
Consider Timing
The value of your assets can fluctuate. In some cases, it may be beneficial to delay filing until certain assets depreciate in value or you’ve used up non-exempt assets for necessary expenses.
Convert Non-Exempt Assets
In some cases, it may be possible to convert non-exempt assets into exempt ones before filing. For example, you might use cash in a non-exempt bank account to pay down the mortgage on your exempt home. However, you must approach this strategy cautiously and under the guidance of an experienced bankruptcy attorney to avoid accusations of fraud.
Sell or Return Non-Exempt Property
If you have non-exempt property of minimal value, you may be able to sell it and use the proceeds for necessary living expenses before filing. Alternatively, if you recently purchased non-exempt items on credit, you might be able to return them to the creditor.
Negotiate with the Trustee
In some cases, you may be able to negotiate with the trustee to “buy back” non-exempt property. This can be particularly useful for items with sentimental value but limited resale value.
Consider Chapter 13 Instead
If you have significant non-exempt assets that you want to keep, Chapter 13 bankruptcy might be a better option. In Chapter 13, you can keep all your property in exchange for paying the amount of your non-exempt equity and your disposable income to creditors over a 3-5 year period.
Common Misconceptions About Property in Chapter 7
There are several misconceptions about what happens to your property in Chapter 7 bankruptcy:
Myth: You Lose Everything in Chapter 7
Reality: Thanks to exemptions, most Chapter 7 filers in New York keep all or most of their property.
Myth: You Can’t File If You Own a Home
Reality: The generous homestead exemption in New York often allows homeowners to file Chapter 7 and keep their homes, especially if they have limited equity.
Myth: You Can Hide Assets from the Trustee
Reality: Attempting to hide assets is considered bankruptcy fraud and can result in severe penalties, including denial of discharge and criminal charges.
Myth: You Can’t Keep Any Credit Cards
Reality: While you must list all creditors in your bankruptcy, some credit card companies may choose to continue your account, especially if you have a zero balance.
Myth: You Can Choose What Debts to Include
Reality: You must list all debts in your bankruptcy. However, you may choose to reaffirm certain debts, such as a car loan, if you want to keep the associated property.
What Property Is at Risk in Chapter 7 Bankruptcy?
While New York’s bankruptcy exemptions are generous, it’s important to understand what property might be at risk in a Chapter 7 filing. Generally, non-exempt assets are those that exceed the exemption limits or don’t fall into any protected category. Here are some examples:
Excess Equity in Your Home
If your home equity exceeds the homestead exemption (up to $89,975 in Erie County as of 2024), the excess amount could be at risk. However, in practice, trustees often don’t pursue the sale of a home unless there’s significant non-exempt equity.
Valuable Vehicles
If you own a vehicle worth significantly more than the $4,825 motor vehicle exemption, the trustee might seek to sell it. However, you may be able to negotiate to keep the vehicle by paying the non-exempt value to the trustee over 12 months or so.
Luxury Items
High-end electronics, expensive jewelry (beyond the $1,150 exemption), valuable artwork, or collectibles may be at risk if they exceed available exemptions.
Investment Properties
Rental properties or vacation homes are not protected by the homestead exemption and could be liquidated in a Chapter 7 bankruptcy.
Business Assets
If you own a business, its assets may be at risk unless they can be fully protected under the tools of the trade exemption or other available exemptions.
Recent Inheritances
If you receive an inheritance within 180 days after filing for bankruptcy, it becomes part of the bankruptcy estate and may be used to pay creditors if it’s not exempt.
The Importance of Full Disclosure
It’s crucial to be completely honest and thorough when disclosing your assets in a bankruptcy filing. Attempting to hide assets or transfer them to friends or family members before filing can be considered bankruptcy fraud, which carries severe penalties, including:
- Denial of discharge, meaning your debts won’t be wiped out
- Criminal charges that could result in fines and imprisonment
- Dismissal of your bankruptcy case.
Remember, the goal of bankruptcy is to give honest debtors a fresh start, not to defraud creditors. Always disclose all assets to your attorney, who can advise you on the best way to protect them legally.
Life After Chapter 7: Rebuilding Your Financial Future
Once you’ve navigated the Chapter 7 process and kept as much of your property as possible, it’s time to focus on rebuilding your financial life. Here are some steps to consider:
Create a Budget
Start by creating a realistic budget that accounts for your post-bankruptcy income and expenses. This will help you live within your means and avoid future financial troubles.
Build an Emergency Fund
Start setting aside money for emergencies. Even small contributions can add up over time and provide a financial cushion.
Rebuild Your Credit
While bankruptcy will impact your credit score, you can start rebuilding immediately:
- Consider getting a secured credit card.
- Make all payments on time.
- Keep balances low on any credit accounts.
- Monitor your credit report regularly.
Focus on Financial Education
Take advantage of financial education resources to improve your money management skills. Many non-profit organizations offer free financial literacy courses.
Plan for the Future
Start thinking about long-term financial goals, such as saving for retirement or your children’s education. Even small steps can make a big difference over time.
The Role of a Bankruptcy Attorney
It can be challenging to navigate the complexities of bankruptcy exemptions and protect your assets. An experienced bankruptcy attorney can provide invaluable assistance by:
- Analyzing your financial situation to determine if Chapter 7 is the best option
- Helping you choose between state and federal exemptions
- Ensuring all exemptions are properly claimed
- Advising on strategies to maximize asset protection
- Representing you in negotiations with the trustee
- Guiding you through the entire bankruptcy process.
At the John D’Amato law firm, we have extensive experience helping New Yorkers navigate Chapter 7 bankruptcy while protecting their assets. Our team understands the nuances of both state and federal exemptions and can develop a tailored strategy to help you keep as much of your property as possible.
FAQ: Do You Keep Your Stuff in Chapter 7 in New York?
Can I keep my house if I file Chapter 7 bankruptcy in New York?
In many cases, yes, you can keep your house when filing Chapter 7 bankruptcy in New York. The state’s homestead exemption is quite generous, especially in New York City and surrounding counties where you can protect up to $89,975 of equity per owner in your primary residence (as of 2024). This means if your equity in the home is less than this amount, you can typically keep your house.
However, here is an important consideration:
- If your equity exceeds the exemption amount, the trustee may sell the house to pay creditors, although you would receive reimbursement for the exempt portion.
It’s crucial to discuss your specific situation with a bankruptcy attorney to understand how filing Chapter 7 might impact your home ownership.
Will I lose my car in a New York Chapter 7 bankruptcy?
In most cases, you can keep your car when filing Chapter 7 bankruptcy in New York. The state exemption allows you to protect up to $4,825 in equity in one vehicle (or $11,975 if the vehicle is equipped for use by a disabled person). If you choose the federal exemptions, you can protect up to $4,450 in one motor vehicle.
Here’s how it typically works:
- If your car is worth less than the exemption amount, you can keep it without any issues.
- If you have equity in the car that exceeds the exemption, you might be able to pay the trustee the non-exempt amount to keep the vehicle.
- If you’re still making payments on the car, you’ll need to continue making these payments and may need to reaffirm the debt to keep the vehicle.
Note that if you have multiple vehicles, you can apply this exemption to only one of them. An experienced bankruptcy attorney can help you strategize how to best protect your vehicles in bankruptcy.
Can I keep my retirement accounts if I file Chapter 7 in New York?
Yes, in most cases, you can keep your retirement accounts when filing Chapter 7 bankruptcy in New York. Both New York state law and federal law provide strong protections for retirement accounts. These typically include:
- 401(k) plans
- 403(b) plans
- IRAs and Roth IRAs
- Pension plans
- Profit-sharing plans
- Defined benefit plans.
These accounts are generally fully exempt, meaning you can keep the entire balance regardless of the amount. However, there are a few exceptions:
- Inherited IRAs may not have the same level of protection as your own retirement accounts.
- Contributions made to an IRA or Roth IRA within 120 days of filing may not be protected.
- If you’ve taken a loan from your 401(k), this may complicate matters.
It’s important to note that while the funds in these accounts are protected in bankruptcy, this doesn’t mean you should withdraw from them to pay debts before filing. Such actions could be seen as preferential transfers and potentially reversed by the trustee. Always consult with a bankruptcy attorney before making any significant financial moves prior to filing.
What happens to my personal belongings in a New York Chapter 7 bankruptcy?
In most Chapter 7 bankruptcies in New York, debtors are able to keep all or most of their personal belongings. This is due to the various exemptions available under New York state law and federal law. Here’s a breakdown of how different types of personal property are typically treated:
- Household goods and furnishings: New York law allows you to keep necessary household furniture, appliances, and clothing. There’s no specific dollar limit on these items.
- Jewelry: You can keep up to $1,150 worth of jewelry, including your wedding and engagement rings.
- Tools of the trade: Up to $3,575 worth of tools, books, and instruments necessary for your profession can be exempted.
- Cash and bank accounts: New York has a specific exemption for cash. You can also use the $1,175 wildcard exemption if you’re not using the homestead exemption.
- Electronics: These often fall under the household goods exemption, but high-value items may need to use part of the wildcard exemption.
Remember, these are the New York state exemptions. If you choose the federal exemptions, you’ll have different limits, including a $14,875 total exemption for household goods.
In practice, trustees rarely seek to sell low-value personal items, even if they’re technically non-exempt, because the cost of selling them would outweigh any benefit to creditors. However, valuable collections or luxury items may be at risk if they exceed available exemptions.
Can creditors take my wages after I file Chapter 7 in New York?
After you file for Chapter 7 bankruptcy in New York, creditors cannot take your wages for the duration of the process. This is because of the “automatic stay” imposed in New York upon filing for Chapter 7. This stay prohibits most creditors from continuing collection efforts, including wage garnishments, with a few exceptions (such as child support or certain tax debts).
After you receive your discharge at the end of your Chapter 7 case (typically three to four months after filing), most of your unsecured debts will have been wiped out. Creditors can no longer attempt to collect on these debts or garnish your wages for them.
However, there are some important points to consider:
- Secured debts (like car loans that were reaffirmed while in Chapter 7) and certain types of unsecured debts (like recent taxes or student loans) may survive the bankruptcy. If you fall behind on payments for these debts after bankruptcy, creditors may be able to garnish your wages.
- If a wage garnishment was in place before you filed for bankruptcy, you may need to take action to stop it, even after filing.
- Some government agencies, like the IRS, may still be able to garnish your wages for certain types of debts even after bankruptcy.
It’s crucial to work with your bankruptcy attorney to ensure all garnishments are properly addressed during and after your bankruptcy case.
What happens to my bank accounts when I file Chapter 7 in New York?
When you file for Chapter 7 bankruptcy in New York, you must disclose all of your bank accounts and their balances on the date of filing. Here’s what typically happens:
- Exemptions: New York doesn’t have a specific exemption for bank accounts, but you can use the $1,150 wildcard exemption to protect some cash if you’re not using the homestead exemption. Federal exemptions, if chosen, offer a slightly larger wildcard exemption.
- Trustee review: The bankruptcy trustee will review your bank statements to ensure there were no large transfers or payments before filing that could be considered preferential or fraudulent.
- Freezing accounts: Some banks may temporarily freeze accounts upon receiving notice of a bankruptcy filing, especially if you owe money to that bank. This is usually resolved quickly with help from your attorney.
- Set-offs: If you owe money to the bank where you have an account (like a credit card balance), the bank may have the right to take money from your account to pay the debt.
- Non-exempt funds: If you have funds in your accounts that exceed available exemptions, the trustee may require you to turn these over.
Consult John D’Amato: Smart Strategies to Keep Your Stuff in Chapter 7 Bankruptcy in New York
Filing for Chapter 7 bankruptcy in New York doesn’t automatically mean losing everything you own. Thanks to exemptions and careful planning, you may keep your essential property and emerge from bankruptcy with a fresh financial start. However, this requires legal experience and careful strategy.
Attorney John D’Amato has three decades of experience in this area, and is ready to guide you through the Chapter 7 process. Our team can help you understand your options, protect your assets, and achieve the debt relief you need. We’ll work closely with you to develop a personalized strategy that maximizes your property exemptions and sets you on the path to financial recovery.
If you’re considering Chapter 7 bankruptcy in New York and have concerns about keeping your property, don’t hesitate to reach out. Contact John D’Amato, PLLC at (716) 703-9099 for a FREE consultation. Let us help you navigate the bankruptcy process with confidence and emerge stronger on the other side.