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Bankruptcy exemption expansion passes New York legislature, awaits Governor's signature

Both the New York Assembly and Senate have passed Bill S. 7034, which expands New York's bankruptcy and judgment debtor asset exemptions. The bill must be signed by the governor; it will then be effective thirty days later. Highlights of the changes are:

1) Motor vehicle exemption increased to $4,000, and available to both bankruptcy and non-bankruptcy judgment debtors;

2) Household goods exemption for bankruptcy debtors doubled to $10,000, and the cash exemption (alternative to homestead exemption) for bankruptcy debtors doubled to $5,000;

3) Family library exemption increased to $500;

4) Domestic animals exemption increased to $1,000;

5) Computer, cell phone and health aids added to list of necessary household goods;

6) The $35 watch exemption changed to a $1,000 watch, jewelry and art exemption;

7) Tools of the trade exemption increased to $3,000;

8) For a debtor not using a homestead exemption, a $1,000 catch-all exemption;

9) Increase in homestead exemption: for New York, Long Island, and the Lower Hudson Valley: $150,000; for the Upper Hudson Valley and Albany: $100,000; for the rest of New York: $75,000.

10) All dollar amounts in CPLR 5205 and 5206, and Debtor & Creditor 282 and 283. will be adjusted for inflation every three years, starting April 2012.

11) Bankruptcy debtor may opt to use the federal exemption of Bankruptcy code section 522 rather than the New York exemptions.

For historical perspective, I am posting a separate blog on the history of New York exemptions.

The following is the text of the official legislative bill memorandum that accompanies S. 7034:

TITLE OF BILL: An act to amend the civil practice law and rules, in relation to increasing the property values which are exempt from the satisfaction of a money judgment; and to amend the debtor and creditor law, in relation to increasing the exemptions in bankruptcy

PURPOSE OF BILL: Increases the amount of exemptions in bankruptcy proceedings, money judgments, provides a choice between the state and federal exemptions and institutes a COLA for these amounts.

SUMMARY OF PROVISIONS OF BILL: This bill would increase the level of certain exemptions from the satisfaction of a money judgment. In addition to the increases, it would add one computer, one cell phone and one motor vehicle worth up to $4,000 to the list. If such vehicle was equipped for use by a disabled person, the limit would be $10,000. The money judgment exemption for the motor vehicle would not apply if the debt enforced is for child support, spousal support, maintenance, alimony or equitable distribution. It would increase the homestead exemption value of a home under Section 5206 of the CPLR from $50,000 to:
$150,000 for the counties of Kings, New York, Queens, Bronx, Richmond, Nassau, Suffolk, Rockland, Westchester, and Putnam; $125,000 for the counties of Dutchess, Albany, Columbia, Orange, Saratoga, and Ulster; $75,000 for the remaining counties in the state.

It would amend Subdivision 1 of Section 282 of the Debtor and Creditor Law to increase from $2,400 to $4,000 the exemption for one motor vehicle in bankruptcy. If such vehicle was equipped for use by a disabled person, the limit would be $10,000 in bankruptcy. The bill would amend section 283 of the debtor and creditor law to increase the amount of the aggregate individual bankruptcy exemption from $5,000 to $10,000.

The bill would add a new section 285 to the Debtor and Creditor Law to permit debtors to choose either the current federal exemptions or the exemptions in New York Law. The New York State exemptions are listed in Debtor Creditor Law Art 10-A, Sections 282 and 283. Federal exemptions are enumerated in 11 U.S.C. 522(d). It will apply a Cost of Living djustment to be published by the New York Banking Department for the applicable exemptions in sections 5205 and 5206 of the CPLR and Section 282 and 283 of the Debtor and Creditor Law.

JUSTIFICATION: The purpose of the Homestead Act is to allow a debtor to keep enough property and money exempt from the satisfaction of a money judgment to continue to live without becoming a ward of the State. The current levels of the exemptions from the satisfaction of a money judgment in the Homestead Act have been eroded by inflation to be almost meaningless. This bill sets realistic limits that reflect today's values and brings New York into accord with other states.

In 1982 the Federal government amended the bankruptcy law to provide states with the power to modify certain aspects of their bankruptcy law, such as the dollar value of property exempt in bankruptcy proceedings.

New York opted to set its own dollar amounts. In 1995 the United States Bankruptcy Code was amended to double all the property exemptions on the Federal level to adjust for inflation and to institute a COLA to prevent future erosion. These changes did not affect New York because we had opted out of the Federal exemptions. It is time for New York to take similar action.

In New York, as in most states, bankruptcy exemptions include the personal property which is exempt from the satisfaction of a money judgment. However, New York permits one motor vehicle worth up to $2,400 above liens and encumbrances to be exempt in bankruptcy but it is not exempt from the satisfaction of a money judgment. This bill will remedy that inequity by making one motor vehicle exempt from the satisfaction of a money judgment and increasing the dollar amount to $4,000 to account for inflation. However, if that vehicle has been equipped for use by a disabled debtor, the dollar limit will be $10,000.

These property values are consistent with the values used by other states. Specifically:

Personal Property: Many states have wildcards which apply to any personal property - for example Texas $30,000 per person or $60,000 per household. Thus many states carry higher exemptions which take a generic form. Specifically:

1. This bill will increase the value of books [and religious texts] from $50 to $500:

States with same/higher limits for books and religious texts which are exempt from the satisfaction of a money judgment include Colorado [$1,500], Hawaii [no limit], Iowa [$1,000], Louisiana [no limit], Minnesota [no limit], New Hampshire [$800], North Dakota [$1,500], Oklahoma [no limit], Oregon [$600], and Washington [1,500].

2. Domestic Animals and Food from $450 to $1,000:

States with same/higher limits include Alaska [$1,250], Colorado [$50,000 includes farm equipment and tools too], Louisiana [no limit], and Virginia [no limit].

3. One watch from $35 to $1,000 with jewelry and art added to the category:

Jewelry is exempt under the federal bankruptcy guidelines to $1,350. States with same/higher limits include: Arizona [$1,000 jewelry], Alaska [$1,250 jewelry], California [$6,750 jewelry and art], Colorado [$2,000 jewelry], Idaho [$1,000 jewelry], Iowa [$2,000 jewelry], Kansas [$1,000 jewelry], Maine [watch - no limit], New Mexico [$2,500 jewelry], Rhode Island [$1,000 jewelry].

4. Tools of trade from $600 to $3,000.

Federal bankruptcy guidelines are $2,025. States with same/higher limits include: Alaska [$3,500], California [$6,750], Colorado [$20,000], Georgia [$5,000], Hawaii [no limit], Iowa [$10,000], Kansas [$7,500], Louisiana [no limit], Maine [$5,000], Maryland [$5,000], Minnesota [$10,000], Mississippi [$10,000], Missouri [$5,000], Montana [$3,000], Nevada [$10,000], New Hampshire [$5,000], Oklahoma [$10,000], Oregon [$3,000], Utah [$3,500], Vermont [$5,000], Virginia [$10,000], Washington [$5,000], Wisconsin [$5,000],

5. Motor vehicle from $0 to $4,000 and from $0 to $10,000 for disabled equipped vehicle [current law is $2,400 bankruptcy only].

Federal bankruptcy guidelines are $3,225. States with same/higher include: Arizona [$5,000 & $10,000 disabled], Colorado [$5,000 & $10,000 disabled], Iowa [$7,000], Kansas [$20,000 & no limit if disabled], Louisiana [$7,500], Maine [$5,000], Minnesota [$4,000 & $40,000 disabled], Nevada [$15,000 no limit disabled], New Hampshire [$4,000], New Mexico [$4,000]; North Dakota [$32,000 if disabled], Oklahoma [$7,500], Rhode Island [$10,000].

6. Wildcard on personal property/bank account/cash if no homestead exemption claimed from $0 to $1,000:

Federal bankruptcy guidelines adds $2,175 if no homestead. States with same/higher include: Arizona [$1,000 or 1.5 months rent], Florida [adds $3,000 if no homestead]; Iowa [$1,000 cash or bank account]; Maine [adds $6,000 if no homestead], New Hampshire [$1,000 wildcard adds $7,000 unused exemptions], North Carolina [adds $5,000 if no homestead]; North akota [adds $7,500 if no homestead], South Carolina [adds $5,000 if no homestead], Wisconsin [$1,000 bank account/cash].

The value of real property which is exempt from the satisfaction of a money judgment was increased in 2005 from a paltry $10,000 to $50,000. That increase, while long overdue, did not lift the exemption to a level comparable to many other states with similar property values nor did it account for the divergent property values across New York. This bill would increase the homestead exemption from $50,000 to $150,000 for the counties of Kings, New York, Queens, Bronx, Richmond, Nassau, Suffolk, Rockland, Westchester, and Putnam; $125,000 for the counties of Dutchess, Albany, Columbia, Orange, Saratoga, and Ulster; and $75,000 for the remaining counties in the state. States with higher limits include:

Federal bankruptcy exemption is $20,200. States with same/higher include: California [$50,000 - $150,000], Connecticut [$75,000 - $125,000], Florida [no limit], Idaho [$100,000], Iowa [no limit], Kansas [no limit], Massachusetts [$500,000], Minnesota [$750,000 farms,
$300,000 homes], Montana [$250,000], Nevada [$550,000], Rhode Island [$300,000], South Dakota [no limit], Texas [no limit], Washington [$125,000].

Since the 1995 adjustments to the Federal exemptions, a Cost of Living Adjustment [COLA] has prevented erosion due to inflation. We have seen how static values in the New York exemptions were eroded by inflation.

This bill institutes a COLA to ensure that these exemptions - like their Federal counterparts - are never again eroded by the passage of time. This COLA will be published by the New York State Banking Department which already publishes a COLA for other money judgment purposes [see CPLR 5205]. The COLA will be applicable to both the personal and real property which is exempt from the satisfaction of a money judgment and to the applicable exemptions in bankruptcy.

Finally, another 1995 amendment to the United States Bankruptcy Code permitted states to have the option to choose either their states' or the Federal exemptions providing their State law permitted it. This bill would give New Yorkers the option to choose between the two by making such an amendment. It will be a new section 285 to the Debtor and Creditor Law.

FISCAL IMPLICATIONS FOR STATE AND LOCAL GOVERNMENTS: Undetermined.

EFFECTIVE DATE: Thirty days after becoming law.

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