Bankruptcy Laws in New York

If you can’t make it here, well, you are not alone. Wait, that’s not how the song goes.

But, it certainly is true. New York state is unimaginably diverse, both in its people and its geography – from rural farmland to icy Buffalo, New York, to the city that gets all the attention. And especially if you are in New York City, it can be an incredibly difficult place to make things work – everything from the Halal cart on the corner to those infuriating school zone speed camera tickets chips away at your income until you are barely making ends meet. Real life in NYC is more about struggling to make ends meet than glitz and glamor, at least for most of us.

If you are struggling to make ends meet here in the city, you may be considering bankruptcy as a way to eliminate past debt after hard times and get a fresh start on your financial life. If so, you’ll need to know some of the local New York rules about bankruptcy. 

Bankruptcy is Mostly a Matter of Federal Law

Bankruptcies are filed in federal court. Most of the laws and procedures with regard to filing bankruptcy are set by federal law and don’t change when you cross state lines – a bankruptcy in Ohio is very similar to a bankruptcy in New York. You can read more about the types of bankruptcies and the bankruptcy filing process here. However, there are a few rules that change when you are in New York state, mostly governing the amounts of property that are exempt from being sold off to pay your debts.

New York Means Test

When most people consider bankruptcy, they are thinking about a Chapter 7 filing – the most popular form of filing that eliminates most (if not all) of your debt after selling off your excess assets. But, in order to file a Chapter 7 bankruptcy, you have to satisfy either prong of a two-part means test.

The first part of the means test is income-based: if your household income is less than the median household income for New York, you qualify to file for bankruptcy. As of May 2022, that amount was $63,548 for a single filer, and more for families.

The second part of the means test is a review of your last six months of income to analyze how much disposable income you have each month. Disposable income is what you have left over after you have paid your necessary living expenses, like rent and food. If your disposable income was zero, or close to zero, then you are likely eligible to file under Chapter 7 under the second test. However, definitely discuss this with an attorney first to make sure you are eligible before you spend time and money filing.

New York Bankruptcy Property Exemptions

When you file for bankruptcy under Chapter 7, you do not have to sell everything you own – though it can certainly feel like that. Some of your property is exempt from being sold for a good reason: the courts and the people who write the laws understand that it is pretty difficult to make a fresh financial start if you don’t have the necessities of life that enable you to work and care for your family. Federal law outlines one set of exemptions (a list of property that you keep, which is exempt from being sold to pay your debts), while New York has its own set of exemptions. Generally, you can elect whichever set of exemptions best fits your situation, though you should check with your lawyer before finalizing your decision.

NYCPLR § 5206 Outlines the New York Exemptions, which Include:

Homestead Exemption

Most states will allow you to keep your home, up to a certain amount of equity. In New York, as you can imagine, that amount is adjusted for where you live — those in the Bronx can exempt more equity in their home than those in Oswego County, as one example. As of early 2021:

• $179,950 in Kings, Queens, New York, Bronx, Richmond, Nassau, Suffolk, Rockland, Westchester, or Putnam counties.
• $149,975 in Dutchess, Albany, Columbia, Orange, Saratoga, or Ulster counties.
• $89,975 in any other county.

If you are married, there is more good news: if both spouses have an ownership interest in the property, they can each claim their own exemption – doubling your overall homestead exemption.

Automobile Exemption

It’s hard to get to work without a car, right? Fortunately, there is an exemption for vehicles, though it is pretty limited. Bankruptcy filers are allowed to exempt up to $4,550 of equity in one motor vehicle. In today’s market, a $4,550 vehicle may barely even run, but if you have a car that is worth that much or less (or your equity in the car is that much or less), you can exempt it from liquidation and keep it as part of your bankruptcy filing. Keep in mind that if you owe on the car, and you decide to keep it, you will have to continue making payments on it and will still owe on the vehicle after filing for bankruptcy.

Wildcard Exemption

This is a truly interesting exemption. It allows you to exclude pretty much any personal property or cash, up to $1,150. But, it cannot be applied to real estate and cannot be used if you already used the homestead exemption.

Work Tools

An additional exemption covers tools of your trade up to $3,400. This means plumbers can keep their wrenches and soldering tools, lawyers can keep their laptops, and doctors can keep a stethoscope and a box of latex gloves.

Miscellaneous Property Exemptions

There is one further catchall category, in addition to the wildcard exemption, for personal property. This exemption allows up to $11,375 for household goods, a wedding ring, other watches, jewelry, and art up to $1,150 in value, cell phones, computers, domestic animals (no, your prized chow chow will not be auctioned off), and up to 120 days of home heating fuel and food for your family.

Note, that while this is a very broad exemption, they have seen enough clever fraud to put individual caps on items like books valued up to $575, food up to $1,150 per person, etc. That may seem a little overly specific, but as you can imagine, bankruptcy fraud is not a rare thing.

Wages, Cash, and Pensions

You can’t get a fresh start with an empty bank account, so you are allowed to keep up to 90% of the income you were paid in the 60 days before filing. You can also keep all of any court-ordered alimony, maintenance, or child support. Furthermore, many retirement and benefit plans (including qualified pension plans, most IRA accounts, Social Security, disability, unemployment, and worker’s compensation) are typically exempt assets in a bankruptcy filing.

Finally, there is the issue of cash. If you did not take the homestead exemption, you can exempt the smaller of up to $11,375 in cash (minus the value of any personal property, such as the books and jewelry we mentioned above) or $5,700 in cash.

When in Doubt, Get Some Help

If all of that seems overly complicated, it’s because it really is. You can claim personal property if you didn’t claim the homestead exemption, which may be doubled if you are married… and only if you didn’t elect to go by the federal rules, which are a whole different list of exemptions – It’s really a lot to process. One almost thinks you’ll need a flow chart and a spreadsheet just to work your way through it. This is where expert advice from a bankruptcy attorney can really pay off — your attorney can help you maximize the amount of exempt property without doing anything that the court might think is too clever, such as trying to exempt a $10,000 watch. If you need expert advice, schedule a consultation with one of our network attorneys.