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Bankruptcy Exemption may expand in NY - an historical perspective

As New York moves close to a major revision of exemptions available to bankruptcy and judgment debtors, a review of the history of New York exemptions shows that most have not been updated in decades. "Exemptions" refer to the property a person who has been sued, or a person who has filed bankruptcy, can keep free and clear of his or her creditors. As of today, June 29, 2010, the New York State Senate has passed S. 7034, a bill to expand New York exemptions and index them for inflation. If passed by the Assembly (considered likely) and signed by the Governor (more uncertain), the changes would go into effect thirty days later.

Some assets are exempt in New York no matter what their value (example: a wedding ring; retirement accounts.) Most exemptions, however, have a dollar limit in value, and, with one exception, these dollar limits have not been adjusted in decades. For example, a bankruptcy debtor can exempt $2,400 in equity in a car and, if not claiming a homestead exemption for their residence, $2,500 in cash. These two amounts have not been raised since they were originally enacted in 1982, twenty-eight years ago. The pending legislation increases the car exemption to $4,000 and the cash exemption to $5,000.

Working debtors can exempt "tools of the trade" up to a value of $600, an amount that has not changed in fifty-three years (1957.) The proposed bill increases this to $3,000. Debtors may exempt a watch valued up to $35, an amount set when the exemption was created in 1942 and unchanged ever since. Putting aside the fact that watches are increasingly rare except as fashion items, the new legislation broadens the exemption to include a watch, jewelry and art up to $1,000.

The longest-running unchanged exemption is for books: the "family bible", family pictures, and school books of debtor's family of such person, and $50 worth of books kept for the family library. This $50 exemption amount dates back to at least 1842, unchanged since John Tyler was President. The proposed legislation changes the "family bible" to "religious texts" and increases the exemption to $500.

Many of New York's exemptions are only updated versions of property considered necessary in nineteenth century rural America. One current exemption is for stoves and sewing machines. This exemption originally protected "spinning-wheels, weaving-looms, and stoves". The current household goods exemption was once far more itemized: "All necessary wearing apparel, beds, bedsteads and bedding, ... necessary cooking utensils, one table, six chairs, six knives and forks, six plates, six tea-cups and saucers, one sugar-dish, one milk-pot, one teapot and six spoons one crane and its appendages, one pair of andirons and a shovel and tongs." That pre-Civil War list of necessities was not simplified until 1946. And the current exemption for domestic animals was, for a long time, quite specific: "All sheep to the number of ten, with their fleeces, and the yarn or clothe manufactured from the same, one cow, two swine" and the necessary food for them.

The one exemption that has been updated regularly in recent years is the homestead exemption, protecting equity in a debtor's residence. In 1850, this exemption was set at $1,000, a figure that did not rise for a hundred and nineteen years, to $2,000 in 1969, then 10,000 in 1977, and $50,000 in 2005. The proposed bill increases the amount to $150,000 for New York City, Long Island and the Lower Hudson, $100,000 for the Upper Hudson area and Albany, and $75,000 for the rest of the state, including all of Western New York. Considering how much of a house a thousand dollars could buy you in 1850, the increase seems appropriate.

The proposed bill also allows New York bankruptcy debtors to claim federal exemption as an alternative to New York exemptions, and I will write more about that if and when the bill is passed.

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