How Does Bankruptcy Work in New York State?

April 26, 2019

If you’re unable to pay your bills each month, filing for bankruptcy in New York can help you wipe out debt and get back on track. Here’s what you’ll want to do to get started on your bankruptcy:

• decide whether filing for Chapter 7 or Chapter 13 bankruptcy is best
• determine whether your income qualifies for that bankruptcy chapter
• find out what will happen to your property, and
• start preparing your paperwork.

You’ll learn more about these steps and how to locate information that can be difficult to find, such as official bankruptcy forms, New York means test figures, credit counseling providers, your local bankruptcy court, and the exemption laws you’ll use to protect property in a New York bankruptcy.

Qualifying for Bankruptcy in New York—Means Testing

In bankruptcy, the means test determines whether you meet the qualification requirements of a particular chapter.

• Chapter 7 bankruptcy. You’ll meet income qualifications if you pass the “means test.” The first step is determining whether your household income is lower than the median income of your state. If it is, you pass and can receive a discharge in a Chapter 7 case. You might still pass the means test after completing the second portion, which involves subtracting allowed expenses from your income. If, after doing so, you don’t have enough discretionary income to make a meaningful payment to creditors, you’ll qualify for Chapter 7.
• Chapter 13 bankruptcy. If your income exceeds the Chapter 7 limits, you can repay some or all of what you owe in a five year Chapter 13 repayment plan. The tricky part here is that you must have enough income to pay all required debts. To determine your Chapter 13 bankruptcy payment, you’ll do a calculation similar to that in Chapter 7. You’ll pay the greater of your disposable income, the value of your nonexempt property, or the amount of your nondischargeable debt (such as support obligations and tax debt). If you qualify for Chapter 7 but want to file Chapter 13 to take advantage of its unique mechanisms, such as saving a home from foreclosure, you can shorten the plan length to a three-year plan.

The necessary income charts and expense guidelines are on the U.S. Trustee’s website (select “Means Testing Information”).

Protecting Property With New York Bankruptcy Exemptions

Most people want to know whether they’ll be able to keep their property in bankruptcy. You’ll find out which assets you can protect by reviewing New York’s bankruptcy exemption law.

A list of federal bankruptcy exemptions exists, too, and you can choose the list that works best for you. If you decide on New York’s exemptions, you can use the federal nonbankruptcy exemptions if they’re helpful.

The bankruptcy chapter you file will determine what will happen to nonexempt property (assets you can’t protect with an exemption):

• In a Chapter 7 bankruptcy, the trustee appointed to oversee your case will sell any nonexempt property and distribute the proceeds to creditors according to the bankruptcy payment rules.
• By contrast, you can keep all of your property in a Chapter 13 bankruptcy. But, there’s a catch. You must pay the nonexempt property value to your creditors through the three- to five-year Chapter 13 repayment plan.
• Spouses who file together in New York can double the exemption amount in each category as long as both spouses have an ownership interest in the property.

New York’s Bankruptcy Exemption List

Here are some commonly used New York bankruptcy exemptions. You can find New York’s laws on the New York State Senate website.

New York Homestead Exemption

A debtor can protect the equity in a house, condominium, co-op, or mobile home used as a residence up to the following values:

• $170,825 in Kings, Queens, New York, Bronx, Richmond, Nassau, Suffolk, Rockland, Westchester and, Putnam counties.
• $142,350 in Dutchess, Albany, Columbia, Orange, Saratoga, and Ulster counties, and
• $85,400 in all remaining counties.

(NYCPLR §§ 5206 (a), (d), and (e).)

To learn more, see The New York Homestead Exemption.

New York Motor Vehicle Exemption

A filer can exempt the equity in one motor vehicle up to $4,550 in value or up to $11,375 if the vehicle is equipped for use by a disabled debtor.

If you have more vehicle equity than you can exempt, and you don’t use the homestead exemption, you can add the wildcard exemption and protect an additional amount. (NYCPLR §§ 5205 (a)(8).)

New York Wildcard Exemption

Exemptions protect necessary items that you’ll need to work and live. The New York wildcard exemption allows you to protect any personal property of your choice (not real estate) or cash up to a value of $1,150. This exemption is available only if you don’t use the homestead exemption. (NYCPLR §§ 5205 (a) (9).)

Other Bankruptcy Exemptions in New York

Find a more detailed list of New York bankruptcy exemptions.

Verify Exemptions Before Filing

New York adjusts exemption amounts every three years. These figures reflect the April 1, 2018 change. For the latest figures, go to New York’s Department of Financial Services website and search for “Exemption from Application to the Satisfaction of Money Judgments.”

More New York Bankruptcy Information

You’ll use this information when you’re ready to prepare your paperwork and file your case.

New York Credit Counseling and Debtor Education Information

Individual filers must take two financial courses—one before filing and another before receiving a discharge (debt forgiveness). Approved providers are listed under “Credit Counseling & Debtor Education” on the U.S. Trustee’s website (be sure to scroll down to your district).

Bankruptcy Costs, Filing Fees, and Forms

Most people must pay something to file for bankruptcy, but it’s usually worth the cost. Here’s what you can expect.

• Official bankruptcy forms. Before the New York bankruptcy court wipes out qualifying debt, you must disclose all aspects of your financial situation—income, expenses, property, debt, and property transactions—on official bankruptcy forms. These forms are free. After filling out the bankruptcy forms online on the U.S. Bankruptcy Court forms webpage, you’ll file your paperwork in your local bankruptcy court.
• Bankruptcy filing fees or fee waiver. You’ll pay a filing fee when you file your paperwork with the court unless you qualify for a fee waiver. Find out about both in Bankruptcy Filing Fees and Costs.
• Bankruptcy lawyer fees. The cost to hire a lawyer varies depending on the area. Many people benefit from retaining counsel. Find out the benefits of being represented by an attorney.

New York Bankruptcy Court Locations and Websites

The state of New York has three federal judicial districts—the Northern District, Eastern District, and Southern District of New York. Each district has a bankruptcy court with several divisions.

To determine which division with jurisdiction over your case, use the Federal Court Locator page. Click on “Bankruptcy” in the drop-down box, then enter your location information. You can also reach a court clerk at one of the phone numbers listed below.

On each court’s website (links below), you’ll find instructions for filing your paperwork and other information you’ll need, like the court’s local rules. Click on “Filing Without an Attorney.”

This overview intends to provide some of the information needed by a filer when preparing a bankruptcy case. Filing without an attorney can be difficult, and each filer is responsible for understanding the law. Consider purchasing a do-it-yourself book like How to File Chapter 7 Bankruptcy by Attorney Cara O’Neill and Albin Renauer J.D.