Bankruptcy is the legal process that a person or business initiates when they cannot meet their financial obligations. Through bankruptcy, debtors liquidate their assets or restructure their finances to fund or eliminate their debts that they cannot pay. There are many types of bankruptcy, and all of the different forms are defined and governed under federal law.
Consumer bankruptcy occurs when an individual who cannot pay back their debts incurred for personal needs initiates bankruptcy proceedings. Once the consumer bankruptcy proceedings are completed, the debtor that filed for the bankruptcy would no longer be liable for the debts they incurred, minus certain debts deemed not dischargeable by bankruptcy laws.
Additionally, after consumer bankruptcy proceedings, the court would enter an official discharge order that releases the debtor from their debts. This discharge order would then give the debtor a clean financial slate.
However, it is important to note that the bankruptcy would remain on the debtor’s credit report for up to ten years. Also, filing for bankruptcy can have other lasting consequences on the debtor; initiating bankruptcy proceedings should be reserved as a last resort for times of extreme financial hardship.
What Are the Different Types of Bankruptcy?
As mentioned above, there are many different types of bankruptcy. The three main types of bankruptcy in the United States are Chapter 7, 11, and 13. Chapter 7 Bankruptcy, also commonly referred to as “liquidation bankruptcy,” allows an individual to discharge all of their debts legally. However, there are specific rules regarding who can qualify and initiate Chapter 7 bankruptcy proceedings.
To be eligible to file for a Chapter 7 bankruptcy, a debtor’s income must be either equal to or below the median income in their state. Each state will have a different income requirement for filing a Chapter 7 bankruptcy. If the debtor’s income is above the requirement for their state, the court may apply a “means test” based on their previous six months of income, but this is not guaranteed.
In New York, the median income to file a Chapter 7 bankruptcy as of July 2022 was as follows:
- 1- Person Family: $63,715;
- 2- Person Family: $78,663;
- 3- Person Family: $95,779; and
- 4- Person Family: $116,818.
It is important to note that for families over 4 persons, the bankruptcy code in New York provides that $9,900 per person be added to the highest median income for a family of 4 persons. This means that a 5- person family would be $126,718, a 6- person family would be $136,618, etc.
If an individual is eligible and initiates a Chapter 7 bankruptcy filing, the court will issue an automatic stay for the filer. An automatic stay will prevent creditors from attempting to collect on the debts that the filers owe.
Automatic stays also serve to prevent or pause the following actions proceeding or being made against the bankruptcy filer:
- Pending lawsuits against the debtor;
- Wage garnishments of the debtor;
- Filing of liens against the debtor; or
- Seizure of the debtor’s property.
Chapter 13 Bankruptcy, also commonly referred to as “wage earner’s bankruptcy,” is a way for a debtor to restructure their debts to afford payments. Chapter 13 bankruptcy is generally reserved for individuals with incomes higher than their state median but can also be utilized by those who wish to keep their property intact.
Under Chapter 13 bankruptcy, some debts may be eligible for discharge, while others require full payment through a payment plan. Examples of common payment plans are anywhere between three and five years.
An individual is typically considered eligible for a Chapter 13 bankruptcy filing if they meet the following requirements:
- They’re either an individual or a married couple;
- As of April 2022, Their total secured debts are equal to or less than $1,395,875.00;
- As of April 2022, their total secured debts are equal to or below $465,275;
- They have not had a bankruptcy petition dismissed within the last 180 days due to failure to appear or comply with the bankruptcy court; and
- They receive credit counseling through an approved counselor within 180 days of filing their petition.
As can be seen, Chapter 13 bankruptcy differs from Chapter 7 bankruptcy in that the borrower attempts to keep their property and is required to continue making payments on their debts. Similar to Chapter 7, Chapter 13 bankruptcy can also affect an individual’s credit for up to ten years after filing. Finally, during the Chapter 13 bankruptcy payment plan process, debtors must adhere to a strict budget without lines of credit. Because of this, many borrowers tend to drop out of the payment plan.
The final of the three main bankruptcy forms is Chapter 11 bankruptcy. This bankruptcy is also commonly known as “reorganization bankruptcy” and is a type of bankruptcy that is available to individuals, corporations, and partnerships. Unlike the other forms of bankruptcy, Chapter 11 bankruptcy has no limits on the number of debts involved in the bankruptcy process.
As such, this form of bankruptcy is the most common choice for large businesses seeking to restructure their debts to become profitable again. Additionally, Chapter 11 bankruptcy is generally more expensive to debtors than the other chapters, and the rate of successful business reorganizations is generally very low.
What Are the Bankruptcy Exemptions in New York?
New York has allowed its residents to utilize the federal bankruptcy exemptions. However, the New York Bankruptcy Code has implemented rules requiring prospective filers to choose federal or state exemptions. This means that prospective bankruptcy filers can’t use both exemptions at the same time.
Additionally, prospective New York bankruptcy filers must have lived in New York for at least two years to use the New York exemptions.
Examples of the most common bankruptcy exemptions, as of April 2022, in New York are outlined below. It is important to note that the amounts listed for these exemptions may be doubled for married couples. As such, if you are considering filing for bankruptcy in New York, it is a good idea to consult a local attorney familiar with New York bankruptcy exemptions to ensure you fall within the limit of the exemption.
- Homestead Exemption: The homestead exemption (i.e., equity in a dwelling used as a residence) in New York is determined by age, marriage status, and the region in which the person lives and is filing.
- New York allows up to $165,550 for the following NYC counties of Suffolk, Nassau, Putnam, Rockland, Kings, New York, Bronx, Richmond, and Westchester;
- New York allows up to $131,325 for Albany, Columbia, Dutchess, Orange, Saratoga, and Ulster counties; and
- New York allows up to $82,775 for all other counties.
- Equity in Automobiles:
- Up to $4,825 in value, or up to $11,975 if a disabled debtor owns the vehicle.
- Personal Property:
- Up to $1,175 in personal property;
- Up to $6,000 in cash;
- Any burial plots; and
- Up to $1,175 in jewelry.
- Tools of the Trade:
- Up to $3,575 in implements, books, and other tools of the trade.
- Up to $1,245,475 in IRAs or Roth IRAs;
- Unlimited ERISA-qualified benefits that are needed for support;
- Unlimited 401(k), 403(b), profit-sharing plans, or other tax-exempt accounts; and
- Unlimited private pensions
- Public Benefits:
- Alimony and Child Support:
- Any amount reasonably necessary for the support of the debtor and their dependents.
- Wildcard Exemption:
- As noted above, the wildcard bankruptcy exemption in New York is $1175.
Do I Need a Lawyer for Help With New York Bankruptcy Exemptions?
If you are filing for bankruptcy in New York and have questions about New York bankruptcy exemptions, you should consult with an experienced New York bankruptcy lawyer.
An experienced attorney can help guide you through the bankruptcy process in New York and help you determine what exemptions are available to you. Finally, an attorney can assist you with filing all necessary paperwork and represent you at any in-person bankruptcy proceedings.