Last updated March 29, 2017.
If you are considering filing for protection under the federal bankruptcy laws, the first thing that should be done is to engage the services of a knowledgeable attorney. This post is a description of things you might want to know about bankruptcy in New York City, as well as the state, after that important first step.
The Goal of Bankruptcy is a Discharge
The purpose of bankruptcy is to receive a discharge from one’s debts. The discharge means that you will never have to pay those debts that are discharged. Some debts are not discharged, such as taxes, student loans, domestic support obligations and debts that arose from fraud. Otherwise, all credit cards, loans, medical debt, and even taxes older than three years are discharged.
When you are getting ready to file for bankruptcy, you should gather together bills and other documents so that you can make sure all of your debts are listed in your bankruptcy papers. If the debts are old, or you are unsure, you can always get credit reports to see what is owed.
Chapter 7 vs. Chapter 13 Bankruptcy
There are two types of bankruptcy that can be filed for a consumer debtor. One is Chapter 7, which is often referred to as a straight bankruptcy. With a Chapter 7 bankruptcy there are no ongoing payments to creditors required. Once you get your discharge, you’re done with the debts you put into the bankruptcy case.
There is also a Chapter 13 bankruptcy, which requires payments to creditors over a 5-year period. Most people would want to file a Chapter 7 case, but there are certain situations where you must go into a Chapter 13 case, and others where you might want to go into Chapter 13.
Income Can Steer You into Chapter 13
If your family income is above a certain level, you cannot file a Chapter 7 case, and must file a Chapter 13 case and make payments. Your payments seldom pay all of your debts, and when the final payment is made, you receive a discharge for the remainder of the debts that remain unpaid. Many people pay pennies on the dollar.
The situations where you might want to file a Chapter 13 case include making up the arrears on your home mortgage if you have fallen behind, being allowed to keep property you might otherwise lose in a bankruptcy, and finally, because you simply want to pay something on your debts.
Most Keep Their Property in Chapter 7
Most people are able to keep their property even though they file for bankruptcy. The law provides for exemptions, which are things you get to keep even though you file for bankruptcy. This includes a car, if it is not too valuable; some money in the bank; your household goods and wearing apparel; your retirement benefits and even your house — again, if there is not too much value in it.
New York City Homes in Bankruptcy: Cooperatives and Rent Control Apartments
There are two interesting questions that arise for New York City residents that may not arise in other parts of the country relating to their homes. One is whether cooperative apartments can be retained, and the other involves rent-stabilized and rent-controlled apartments.
When you buy a cooperative, you are not buying what is traditionally thought of as real estate. You actually buy stock in the cooperative corporation that owns the building. When you buy this stock, you are given the right to occupy one certain apartment.
From the perspective of the buyer, you are simply buying a home, but legally you are only buying stock. In bankruptcy, however, the ownership of a cooperative apartment is treated the same as owning a house on a street. If the equity in the apartment is $150,000 or less ($300,000 in the case of a husband and wife owning the coop together) you will be able to keep it through the bankruptcy. Most cooperative owners have less than this amount of equity, since equity is determined by taking the value of the property and subtracting any mortgages. If the value of your equity is above $300,000, it may be vulnerable to the trustee in bankruptcy.
Rent-stabilized and rent-controlled apartments are an interesting issue because the debtor in bankruptcy doesn’t actually own anything, but only has the right to live in the apartment pursuant to a lease. For years it was assumed that since the debtor owned nothing, there was nothing to take away. Then things changed. An owner of a building in which a debtor lived in a rent stabilized apartment offered the case trustee (an attorney who administers the case) some money (to be paid out to creditors) in return for the trustee removing the debtor from the apartment. The building owner was not offering to buy anything that the debtor owned, but only offering to pay money to the trustee to evict the tenant.
In one case where this occurred, the debtor, with the help of public interest lawyers, appealed the decision to evict the debtor, and when the case got to the Second Circuit Court of Appeals, the judges on the panel certified a question to the New York Court of Appeals. Certifying a question means that the federal judges did not want to rule on a question of purely state law, and asked the Court of Appeals, New York State’s highest court, to answer a question for them.
The question arose because the debtor in that case had claimed an exemption for the rent stabilized apartment as a “public benefit,” much like claiming an exemption for welfare payments or food stamps. The lower federal courts had rejected this claim, but when it got to the federal appeals court, the judges asked New York’s highest court to give its opinion as to whether the right to live in a rent stabilized apartment was, in fact, a public benefit. In a recent decision, New York’s court ruled that the rent stabilization was, in fact, a public benefit and could be exempted. There will be further arguments in the federal appeals court, and possibly an appeal to the United States Supreme Court, but it appears that this may be the answer to the question and NYC debtors will not be forced out of their rent stabilized and rent controlled apartments if they file for bankruptcy.
As noted earlier, an individual can keep up to $150,000 in value of their residence through the bankruptcy. This means that if a husband and wife file together, they can keep $300,000 in equity. And, if only one spouse files, the benefit is the same since only one-half of the equity is owned by the debtor. Thus, if there is $250,000 in equity in the home, the debtor owns only $125,000 in equity and can keep it. This only applies to a debtor’s residence, where he lives. It would not apply to a second home.
Which Law Applies to My NYC Bankruptcy Case?
Claiming an exemption for a house in New York brings up another interesting issue. Exemptions are controlled both by the federal bankruptcy law and by state law. The federal bankruptcy law contains a list of exemptions which can be available to a debtor. However, each state can deny its citizens the right to use the federal exemptions and require them to use only the exemptions available in their state.
any states do this, and the state exemptions can be more restrictive than the federal exemptions. In some cases, however, the state exemptions are more generous. States such as Florida, Texas, and New York allow debtors to keep much more value in their homes than the federal list does.
New York has an odd system in that it allows the debtor to use either the federal or the state exemptions. This is important to homeowners because the federal exemption for a home is a little more than $20,000, while the New York state exemption for a home is $150,000 (double for married couples). Thus, if you own a home with a lot of equity, you would want to use the state exemptions. Here is where the situation gets interesting.
NY State Exemption Protects a Home — If You Have Cash, Federal May be Better
Just about the only reason to use the state exemptions in New York is to protect a home. If you do not have a home, or you have a home with no equity, you would use the federal exemptions and would be entitled to keep about $10,000 in cash, since the New York list of exemptions has very little provision for cash.
If you have a home with equity and use the state exemptions, under New York law you cannot keep any cash at all. Cash includes money in the bank and any tax refunds you may be entitled to but have not received and spent yet. Thus a couple who has no house, or one with no equity, could keep, for example, $12,000 in cash and a tax refund of $7,500 (since all numbers are doubled for a couple). A couple that had a house would keep the house, but have to turn over the full $19,500 to the case trustee to be distributed to the creditors.
New York vs. Federal ExemptionsThe top 5 exemptions under New York law compared to federal law.
|Type of exemption||New York law||Federal law|
|Homestead||Up to $165,550 based on the county you live in for a house, condominium, co-op, or mobile home used as a residence||$23,675 of equity in principal place of residence|
|Personal property||Up to $11,025 of total value in items listed under Civil Practice Law and Rules §5205, including food for you and your family for 120 days||$12,625 aggregate value on household goods, plus federal wildcard exemption applicable ($1,250 plus $11,850 of any unused portion of your homestead exemption)|
|Vehicle||Up $4,425 in value; $11,025 if equipped for use by a disabled debtor||$3,775|
|Wages||90% of income received within 60 days before filing bankruptcy, and court-ordered alimony, maintenance, or child support||Income you've earned but not yet received becomes part of your bankruptcy estate|
|Pension/retirement||IRA, 401(k), Social Security, unemployment, disability, public assistance, workers' compensation, or veteran's benefits||Exempt, with a cap of about $1.28 million on IRAs and Roth IRAs|
Will I Have to Appear in Court? Where?
Once your case is filed, you may wonder where you have to appear in court. In New York City, there are two courthouses for bankruptcy cases. For those who file while living in Staten Island, Brooklyn, and Queens, the bankruptcy courthouse is in downtown Brooklyn, at 271-C Cadman Plaza East, just north of the state Supreme Court building. For those living in Manhattan and the Bronx, the courthouse is in lower Manhattan at One Bowling Green (the foot of Broadway), although the meeting with the trustee takes place a block away at 80 Broad St.
If your case is a Chapter 7 case, you will have to appear once, about 4 to 5 weeks after your papers are filed with the Court. If you file a Chapter 13 case, you will have to also appear about 4 to 5 weeks after filing. However for a Chapter 13, there is also a second court date when the Chapter 13 Plan is confirmed. If you live in Manhattan or the Bronx, that date will be about 6 weeks after the first court date. In the Eastern District, there is also a second court date, but if your case is going to be confirmed, two of the three judges do not require a second appearance.
Sixty days after your appearance in a Chapter 7 case, you will be entitled to a discharge, which will be mailed to you a few days after that. For a Chapter 13, the discharge is issued after all the payments are made under the plan.
Every state and locality has its own wrinkles in both how a bankruptcy case is handled and what law applies to exemptions. These are some of the interesting facets of filing a case in New York City.