One of the first questions a person considering bankruptcy will ask is, “If I file for bankruptcy can i keep my home?” Depending upon the facts of an individual case, the answer is very often yes. For most of us, the principal asset that we own is our home and we are quite concerned to preserve any equity we have accumulated in the home so that it is available for retirement. Both New York and bankruptcy law, are sensitive to this concern and have created what is referred to as a “homestead exemption” to protect the equity in an individual’s home in the event he or she is forced to file a bankruptcy case.
Most people who are forced into bankruptcy file what is known as a Chapter 7 case. In its simplest terms, an individual filing for Chapter 7 has the ability to walk away, or to “discharge”, his debts through a bankruptcy proceeding. In exchange, she is forced to give up her assets unless the assets are protected by what is referred to as an “exemption”.
Under the New York law applicable to a bankruptcy case, an individual may protect the first $179,975 in equity in his home if she is forced to file a Chapter 7 bankruptcy case. Significantly, if a home is owned by both a husband and wife, they each are entitled to claim such $179,975 exemption, thus being able to protect $359,950.
The following example illustrates how the New York homestead exemption operates. Husband and wife both have credit card debts which aggregate $100,000. They own a home that is worth $600,000 and have a mortgage against that home of $300,000.
By simple mathematics, they therefore have $300,000 of equity in their home ($600,000- $300,000). As discussed above, because they are entitled to protect under the New York homestead exemption $359,950, which amount is greater than the $300,000 of equity they have in their home, their entire equity is protected. If they file for a Chapter 7 bankruptcy the husband and wife may simply walk away from their obligation to pay the $l00,000 in credit card debt and significantly may keep their home. Through the bankruptcy process, when their case is resolved, they will obtain the discharge of their credit card debt and will have preserved their home and the equity therein.’
Robert L. Pryor is a partner in the Westbury N.Y. firm of Pryor and Mandelup LLP and has practiced bankruptcy law for over 30 years. He is a Chapter 7 Trustee and Former Law Clerk to Hon. C. Albert Parente, Chief Bankruptcy Judge of the Eastern District of New York.