Many people in financial distress are askance at filing a Chapter 7 bankruptcy for fear that their property will be taken and sold to pay off creditors. However, statutory exemptions allow individuals filing for bankruptcy to retain certain assets up to specified limits. The purpose of exemptions is to provide the debtor with basic necessities so they can make a fresh financial start.
When filing for Chapter 7 bankruptcy in New York, you have the option to choose between federal bankruptcy exemptions and New York State exemptions, but you cannot mix and match. Each exemption system includes protections for various types of property, and the choice depends on which set of exemptions offers more favorable coverage based on your assets.
Under the federal exemption system, key protections include:
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Homestead exemption — Protects up to $27,900 of equity in a primary residence (as of 2024). Married couples filing jointly may double this amount.
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Vehicle exemption — Allows up to $4,450 in equity in one motor vehicle.
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Household goods and furnishings — Exempts up to $700 per item, with a total limit of $14,875.
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Jewelry — Protects up to $1,875 in jewelry.
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Wildcard exemption — Provides up to $1,475 plus any unused portion of the homestead exemption, for a total potential exemption of $13,950 that can be applied to any property.
New York State exemptions, however, offer different and often more generous protections, particularly for homeowners. Some important New York exemptions include:
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Homestead exemption — The amount of equity protected depends on the debtor’s county of residence. For example, in New York City and surrounding counties (Kings, Queens, New York, Bronx, Richmond, Nassau, Suffolk, Rockland, Putnam, and Westchester), up to $179,950 of home equity is exempt per person. Married couples filing jointly may double this amount.
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Motor vehicle exemption — Protects up to $4,825 of equity in one vehicle, or $11,975 if the car is equipped for a disabled person.
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Clothing and household goods — Fully exempt without specific monetary limits for necessary items.
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Tools of the trade — Protects up to $3,575 worth of tools used for work.
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Money judgments — Up to $3,425 is exempt from enforcement of money judgments against the debtor.
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Wildcard exemption — Protects up to $1,175 of any kind of property, plus up to $11,825 of any unused portion of your homestead exemption.
The homestead exemption is particularly significant for homeowners. It shields a portion of the equity in a primary residence from liquidation. Equity is the difference between the home’s market value and any outstanding mortgage or liens. For example, if a home in Brooklyn is worth $500,000 with a mortgage balance of $300,000, the homeowner’s equity is $200,000. If the debtor claims the New York homestead exemption of $179,950, only $20,050 remains potentially available to creditors.
If there is equity remaining beyond the homestead exemption, the bankruptcy trustee may sell the home to pay creditors. However, you are entitled to receive the exempted amount from the sale proceeds. If the remaining non-exempt equity is minimal, the trustee may decide not to sell the property, as the costs of sale and distribution may outweigh the benefit to creditors.
For New Yorkers navigating the complexities of Chapter 7 bankruptcy, choosing the right set of exemptions is vital. Law Office of Gregory Messer PLLC in Brooklyn offers expert guidance to protect your assets so that you achieve the best possible outcome. Call 347-943-8475 or contact us online to schedule a free initial consultation.