Chapter 7 Bankruptcy – Get a Fresh Start
A Chapter 7 bankruptcy will discharge or wipe out most, if not all of your unsecured debts, such as:
- medical bills
- utility bills
- credit card payments
- deficiency balances from vehicle repossession and foreclosure
- signature loans, payday loans
Unfortunately, certain debts are not eligible for “forgiveness” in Chapter 7 including:
- student loans
- child support
- fraudulent debts
- certain taxes
- court ordered fines and penalties
Liquidating Assets in a Chapter 7 Bankruptcy
In a Chapter 7 bankruptcy, a court-appointed trustee gathers and sells your non-exempt assets and uses the proceeds to pay your creditors. This doesn’t mean that you will lose everything you own however. Fortunately, New York State laws and the Federal Bankruptcy Code provide different options for protecting most, if not all, of the equity in certain pieces of consumer property. The Brooklyn Bankruptcy Center can help you identify the appropriate exemptions and that allow you to keep the most property.
Chapter 7 Bankruptcy Exemptions
In a Chapter 7 bankruptcy, there are exemptions that allow you to keep assets up to a certain value.
Some of the most notable New York state exemptions include:
Homestead Exemption – The homestead exemption protects the equity you own in a house, condo, co-op, or mobile home up to a predetermined amount. New York state exemptions provide greater protection of your primary residence than federal ones.
- If your home is located in Brooklyn, Queens, Manhattan, the Bronx, Staten Island, Long Island, Rockland, Westchester and Putnam counties, you can protect up to $170,825 worth of equity.
- If your home is located in the counties of Dutchess, Albany, Columbia, Orange, Saratoga or Ulster, you can protect up to $165,550 of equity.
- If your home is located in any other county in New York State, you can protect up to
- $85,400 of equity.
Wildcare Exemption — If you do not use the homestead exemption, a wildcard exemption may be used to protect any personal property of your choice or cash value up to $1,150.
Motor Vehicle Exemption — up to $4,550 in equity for a car
Clothing, Furnishings, Tools of the Trade — up to $11,375
Jewelry/Art Exemption — up to $1,150
Retirement Exemption — Most retirement plans, such as 401k’s, 403B’s, are fully exempt. An IRA funded by a roll-over from a qualified retirement plan is also exempt.
Chapter 7 Federal Exemptions
- Homestead: up to $22,975
- Vehicle: up to $3,775
- Personal property: up to $12,625
- Retirement accounts are fully exempt
- IRAs and Roth IRAs are exempt up to $,283,025
- Life Insurance: up to $12,625.
Qualifying for Chapter 7 with the Means Test
New York requires that you pass something called a “means test” to determine whether you qualify for Chapter 7. To do this, your monthly income (average income for the six full months preceding the month of the bankruptcy filing) must fall below the median income for a household of the same size in New York. If your monthly income isn’t low enough, you may still be able to pass the test by proving you don’t have a lot of disposable income. If your income is still too high, Chapter 13 may be a more viable option to pursue.
Steps Specific to a Chapter 7 filing:
Complete a means test – You will need to pass a means test that compares your income level and disposable income to that of other New York wage earners
Complete a voluntary reaffirmation agreement – If you want to continue making payments on certain secured debts such as your home or vehicle, you need to reaffirm the debt by signing a reaffirmation agreement.
Liquidation of nonexempt property – If you have assets that can be liquidated to pay debt, or nonexempt property, the trustee managing your case may make the decision whether or not to seize the property. At this time, you can use exemptions to keep assets up to a certain value.