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Bill to increase exemptions in bankruptcy puts State code back in touch with reality

Posted: January 03, 2011

Buffalo, NY -- A bill just signed into law by Governor David Paterson changes the exemptions allowed in Chapters 7 and 13 bankruptcy for New York State. Three major amendments increase exemptions for cars from $2,400 to $4,000, tools used in a trade from $600 to $3,000, and homes in the counties of Western New York from $50,000 to $75,000 (areas with higher housing costs would see even higher exemptions). The bill, A08735, also institutes a Cost of Living Allowance (COLA) so that in the future, exemptions will increase as the value of goods and cost of living goes up.

"In my opinion, these changes are long past due," said Jeffrey Freedman, senior partner, Jeffrey Freedman Attorneys at Law, who has been practicing in the area of bankruptcy law for more than 30 years.

"New York is one of a handful of states that has not had a COLA built into its law, and other than the homestead piece -- which increased in 2005 from $10,000 to $50,000 -- exemptions haven't been increased since 1976."

Another significant change is that the bill allows New York State residents the same option as other states have, which is to choose between the exemptions allowed by Federal law and the exemptions allowed by the state in which they live. A husband and wife filling a joint bankruptcy who do not need to claim the homestead exemption under NYS Law, may in certain instances use the Federal exemptions and protect up to $20,000 in cash.

The purpose of bankruptcy, Freedman said, is not to impoverish debtors and make them dependent on state assistance, but to give them a fresh start. This law will help ensure debtors can continue to work and have transportation to get to work.

"Cars, for example, cost more and have a higher book value in today's market than they did 34 years ago. And for a mechanic or a carpenter, even $3,000 for tools is low, but at least it's a step in the right direction. Obviously people can't be expected to continue to work without their tools," he said. In a bankruptcy, tools are valued at the price they would command at auction.

Other exemption increases include: books and religious texts from $50 to $500; domestic animals and food from $450 to $1,000; an exemption to protect a watch is increasing from $35 to $1,000, and now includes jewelry in general; and the so-called "wildcard" on personal property/bank accounts and cash, from $0 to $1,000, where a debtor does not claim the homestead exemption.

"Current levels of exemptions in New York State have been eroded by inflation to the point of being almost meaningless," Freedman said. "This bill brings reality back into the process of filing bankruptcy and gives debtors a legitimate chance to start over."

The bill was co-sponsored by Assemblywoman Crystal D. Peoples-Stokes of the 141st District and seven other members of the Assembly, and sponsored in the Senate by Senator Eric T. Schneiderman (D-Manhattan/Bronx).

Click Here to view the new Bankruptcy Exemptions.

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