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Amended Exemption Statute May Allow Debtors to Protect More Assets in Bankruptcy

Posted: January 24, 2011

In evaluating whether or not bankruptcy will provide relief to a debtor in financial trouble, one of the main issues is often whether or not the debtor will be able to keep their assets. These assets are typically not extravagant, but rather the home in which a debtor has raised a family, the car he drives to work, or the tax refund that a single mother receives. Under the prior law, these assets would often be at risk, because the exemption statute was outdated.

Thankfully, former Governor David A. Paterson recently signed into law, a pro-debtor exemption statute. Debtors will now be able to protect more assets from being taken by a bankruptcy trustee in Chapter 7. It will also reduce the amount which may have to be repaid to creditors in a Chapter 13 repayment plan. The changes will go into effect January 22, 2011.

The new exemption law will now permit debtors to protect a greater portion of equity in their motor vehicles, home, jewelry, and tools of the trade. The amended statute also institutes a Cost of Living Allowance (COLA) so that in the future, exemptions will increase as the cost of living goes up.

“In my opinion, these changes are long past due,” said Jeffrey Freedman, Senior Partner at Jeffrey Freedman Attorneys.

Another significant change is that the new statute 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 under state law. If it is not necessary to claim the homestead exemption, it may be possible to protect up to $10,000 in cash or property per debtor, under the federal exemptions. Accordingly, debtors who may not have had the option to file bankruptcy at all, or who only had the option of a Chapter 13 repayment plan they could not afford, may now be able to file a Chapter 7.

The notable exemption increases allowed per debtor under the amended New York Statute are: equity in a car increased from $2,400 to $4,000; increased equity in a home from $50,000 to $75,000 (in Western New York); and tools of the trade from $600 to $3,000. Again, as stated above, if a debtor uses the federal exemptions instead, he may be able to protect up to $10,000 in funds or property per debtor, for a possible total of $20,000 per couple.

Debtors who are having financial problems should speak with a knowledgeable attorney who practices in this area to see whether or not bankruptcy would be an available option.

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