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“ Craig D. Robins, Esq., has been a practicing Long Island bankruptcy attorney for over twenty-four years ”
Archive for December, 2010
Written by Craig D. Robins, Esq.
I just posted breaking news about the Governor Paterson’s unexpected signing of the bill to change the New York Bankruptcy Exemption Statutes. See: New York Bankruptcy Exemptions Suddenly Increased – This Is the Biggest Bankruptcy News in Years!
This Christmas and holiday gift from the outgoing governor is great news for consumers and it will certainly by the major topic of bankruptcy conversation this coming year. The new law, which will help consumers protect more assets than ever before, will certainly lead to many more consumer bankruptcy filings for years to come.
Over Christmas break I prepared a chart outlining the most important changes to the New York exemption statutes that we commonly use for our bankruptcy clients.
There are other changes as well that I didn’t outline, as they never come up. For example, there are also increased protections for cell phones, health aids, food, heating equipment, religious books, etc. However, I have never seen a trustee raise any issue of any kind with such assets.
The Federal Exemptions Come to New York
Perhaps the other major aspect of the new exemption law is that it permits New York residents to choose between the New York exemption statutes and the Federal Exemption statutes which are set forth in Section 522(d) of the Bankruptcy Code.
The federal exemptions have never been available in this state before.
The federal exemptions have some liberal provisions not otherwise available in New York statutes. They provide many additional protections that would be most useful to those consumers who do not need to take advantage of their homestead exemption.
The federal exemptions contain a “wild card” exemption that enables consumers to protect a generous amount of cash.
I will discuss the federal exemptions in future article that I will post later this week.
Chart Containing the Most Important Changes to the New, 2011 Bankruptcy Exemption Statutes for New York
| Existing New York State Bankruptcy Exemptions
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NEW New York State Bankruptcy Exemptions |
Homestead Exemption (note: this can be doubled for married couples filing jointly, who own the real estate together)
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Homestead Exemption (note: this can be doubled for married couples filing jointly, who own the real estate together)
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Motor Vehicle
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Motor Vehicle
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Motor Vehicle equipped for use by a disabled person (new category)
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Cash Exemption if Homestead Exemption is taken
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Cash Exemption if Homestead Exemption is taken
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Jewelry and Art
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Jewelry and Art
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Tools of Trade (these are the working tools and implements that are necessary to carry on one’s business)
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Tools of Trade (these are the working tools and implements that are necessary to carry on one’s business)
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Aggregate Individual Bankruptcy Exemption for Cash, Household Goods and Clothing
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Aggregate Individual Bankruptcy Exemption for Cash, Household Goods and Clothing
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Link to the Actual Bankruptcy Exemption Bill
Here is a link to the actual bankruptcy exemption bill.
New York Bankruptcy Exemptions Suddenly Increased – This Is the Biggest Bankruptcy News in Years!
Posted on
Written by Craig D. Robins, Esq.For New Yorkers considering bankruptcy, the biggest bankruptcy news in five years dropped like a bombshell this afternoon when Governor Patterson unexpectedly signed legislation greatly increasing exemptions for consumers.
Exemptions are those statutes that permit consumer debtors in bankruptcy to keep and protect assets.
New York Residents Seeking Bankruptcy Relief in 2011 Will Be Able to Protect More Assets than Ever Before
This will certainly cause an explosion in the number of consumer bankruptcy cases we will see next year as more financially burdened consumers will be able to eliminate their debts while keeping and protecting all of their assets.
Homestead Exemption Increasing to $150,000 per Person for those on Long Island
Right now each homeowner can protect only $50,000 worth of equity in a house. However, for those on Long Island who live in Nassau and Suffolk Counties, that amount will triple to $150,000.
Since a husband and wife can pool their exemption, that means that a couple will be able to protect a whopping $300,000 worth of equity in their home.
This will enable almost any typical Long Island middle class family to file bankruptcy to eliminate their credit card debts while protecting their home.
In my Long Island bankruptcy practice, I am regularly meeting with homeowners who are forced to file for Chapter 13 bankruptcy instead of Chapter 7 because they have too much equity in their homes. Now, almost everyone will be able to seek Chapter 7 bankruptcy relief and keep and protect their homes.
Incidentally, the amount of the new homestead exemption will be based on what county the debtor’s home is in. For most upstate counties, the homestead exemption will only be $75,000 per person.
More than half of the states previously had more generous homestead exemptions than New York; now it will have one of the best.
Amounts for Almost All Other Exemptions Categories Are Being Increased and New Categories Are Being Added
The new bill also increases the exemptions for a great deal of other assets like cars, and adds some new categories like home computers and vehicles for the handicapped.
Many of the exemption amounts that are being increased had not changed in decades.
I am in the process of reviewing each of the various changes to the exemption laws, and I will discuss and outline them in a post tomorrow.
Proposed Legislation to Expand New York’s Exemptions Has Been Periodically Submitted in Albany for Years
For years, legislation was proposed each and every year in Albany that sought to increase exemption amounts. This legislation never received any publicity because it was periodically struck down and nobody ever expected it to pass.
In years past, when I would discuss this with some of my colleagues, they were surprised to hear that there was pending legislation considering that it wasn’t publicized at all.
Despite reaching various stages in Albany each year for the past decade, such legislation has never found its way into law except once, when the homestead exemption was increased in September 2005. That year it was increased five-fold from $10,000 per person to $50,000 per person. Here’s the article that I wrote about that: Surprise Law Enactment – Homestead Exemption Increased .
The Governor’s Signing of the Bankruptcy Legislation Today Was Totally Unexpected
In July of this year we seemed to get closer than ever before to seeing a change in New York’s woefully inadequate exemption laws.
At that time, both houses of the New York State Legislature passed legislation to increase bankruptcy exemptions in New York State. However, the banking industry, which has an extremely large presence in New York, vigorously lobbied Governor Patterson to veto the bill.
Very few people thought there was any chance that Governor Patterson would sign the legislation into law. For that reason, no one was holding their breath about its passage because nobody expected it to happen.
The Bankers carry a lot of power, even with Democrats. They argued that many consumers owe taxes to New York State, and with the bill’s added protections for debtors, both in and outside of bankruptcy, New York State’s tax collections would suffer.
New York City officials also opposed the legislation, arguing that it would impair the City’s ability to tow and auction cars for outstanding parking violations.
For months, the bankruptcy legislation, which was signed by both houses, just sat on the Governor’s desk, and we all assumed it would die there.
Yet, Gov. Patterson, who is leaving office in just one week, signed the bill today – his very last — with no advance notice and no fanfare of any kind, catching me, as well as all other bankruptcy practitioners, by surprise. And a very nice surprise at that!
Perhaps the Governor, who apparently does not see public service in his future, was upset at the damage wrought by the financial sector which drove the economy into a recession, and used this opportunity to give something back to his constituents.
Governor Patterson Issues Press Release Discussing Why He Signed New Exemption Law
Along with the new law came a press release. In it the Governor said:
“During this time of economic crisis, it is our responsibility as public servants to protect those who are struggling the most.
“A reconsideration of the current exemptions, which in some cases have not been changed in decades, is particularly warranted when an increasing number of individuals find themselves in dire financial condition. Though this is not a perfect bill, the benefits far outweigh its concerns.”
The press release also stated: This bill would provide a much-needed update to the exemptions law in New York as many provisions of State’s exemptions law are antiquated or have not been amended since the 1980’s. The purpose of such exemptions is to permit debtors in bankruptcy to retain a modest amount of personal property and equity in their homes so that they can continue to maintain their lives, and to protect them from becoming homeless, unemployed, or otherwise dependent on the State.
The New and Increased Exemptions Will Help Future Bankruptcy Debtors in Many Ways
Not only will more consumers be able to file for Chapter 7 bankruptcy, but many of those who seek Chapter 13 protection instead will end up paying substantially less through their monthly Chapter 13 plan.
Also, many existing Chapter 13 debtors may be able to convert there cases to one under Chapter 7 and eliminate all further monthly payments.
The bankruptcy attorneys in my office and I will be quite busy reviewing all of our cases over the next few weeks to ascertain how to best take advantage of the new exemptions amounts.
To see a number of post that I’ve written about bankruptcy exemptions, see the articles under this category: Bankruptcy Exemptions.
Written by Craig D. Robins, Esq.
Pro-Se Litigant Scores Victory Against Chapter 13 Trustee Over Tax Refund Issue
When it comes to post-petition tax refunds in Chapter 13 bankruptcy cases, the long-standing practice in this jurisdiction for debtors who propose to pay unsecured creditors less than 100%, is to surrender to the trustee all tax refunds the debtor receives during the pendency of the bankruptcy case.
Every experienced consumer bankruptcy practitioner who practices on Long Island is keenly aware of this “requirement.”
However, what happens when only one spouse files for Chapter 13 relief? Does the non-filing spouse also have to surrender his or her tax refund to the trustee?
Recently, Chapter 13 trustee Michael Macco of Melville said “yes” to this question and threatened to dismiss a confirmed Chapter 13 plan filed only by the wife, unless the non-filing husband cooperated and turned over the entire joint tax refund.
The trustee argued that inherent in the debtor’s obligation to turn over all post-petition tax refunds, was an obligation by the non-debtor spouse to do the same, so that the debtor’s creditors would then receive a distribution from these funds.
The husband refused to do so, went to a law library, and then brought a pro se motion seeking a determination that his share of the tax refund should be protected. He did this two months after writing a letter to the judge expressing frustration over what he perceived to be an extremely unreasonable request from the trustee.
In an affidavit in opposition that was barely longer than one page, the Chapter 13 trustee argued that: a) the debtor chose to file a joint tax return; b) there is no mention in the Chapter 13 plan that there can be an exclusion for the non-debtor spouse’s tax refund if the debtor files a joint return; and c) the Bankruptcy Code requires the debtor to pledge all household income to pay unsecured creditors.
The husband and trustee had oral argument before Central Islip (Eastern District of New York) Bankruptcy Judge Robert E. Grossman in August, who reserved decision. The Judge delivered an oral decision at a subsequent hearing in September.
Judge Grossman then issued a detailed written decision last month, on November 4, 2010. It held that the trustee had no basis, either at law or under the terms of the plan, to compel the husband, as a non-filing spouse, to turn over his property to the trustee, or to hold the debtor in default for the husband’s failure to do so. In the Matter of Susan Malewicz, no. 09-74807-reg, (Bankr. E.D. New York 2010).
Why Do Debtors Have to Turn Over Tax Refunds?
Judge Grossman first addressed the concept of why Chapter 13 trustees require debtors to turn over their tax refunds. Apparently, Chapter 13 trustees claim that if a confirmed plan does not require a debtor to turn over tax refunds, debtors may manipulate deductions on their W-2 forms which would have the effect of reducing monthly income payable to creditors through the plan.
Mindful of the potential for abuse, bankruptcy courts have found that turnover of a debtor’s post-confirmation tax refunds is appropriate under the following situations: when they are property of the estate; when they are included in “projected disposable income” which means they must be committed to the Chapter 13 plan; and/or when the terms of the plan provide for such turnover.
Spouse’s Tax Refund Not Property of the Bankruptcy Estate
The Judge determined that Bankruptcy Code Section 541(a)(2) and 1306(a) are the relevant statutes that determine what is property of the estate in a Chapter 13 case. He then found that there is no provision in the Code that includes a non-debtor spouse’s property as being included in the debtor’s “property of the estate.”
Projected Disposable Income in Chapter 13 Bankruptcy Cases Does Not Include Non-Filing Spouse’s Income
Judge Grossman noted that other courts have permitted Chapter 13 trustees to require turnover of post-confirmation tax refunds under the theory that the refunds must be included in the calculation of the debtor’s “disposable income.”
Bankruptcy Code Section 1325(b) requires debtors to pledge all of “the debtor’s” projected disposable income in order for the plan to be confirmed. Here, the judge emphasized the wording which focused on “debtor” and ultimately found that a non-filing spouse’s entire income is not included in this analysis. “Nothing in the Code obligates anyone other than the Debtor to fulfill the requirements of the confirmed Plan.”
The Chapter 13 Plan Is Binding
Although the plan had the typical language that “the debtor shall pay tax refunds to the trustee,” the Judge found that this wording could not be interpreted to include the non-debtor spouse’s tax refunds.
The Judge also remarked that even though the husband signed an affidavit of contribution, indicating that he was contributing his income to the plan, it was not binding because it was not mentioned in the Chapter 13 plan.
Practical Tips – Don’t Be Steamrolled by a Trustee’s Argument
I actually called the debtor’s husband to get his take on what happened, as scoring a pro se victory over a Chapter 13 trustee is an impressive feat. He said that he felt very firmly that his position was correct and even went to a law library to do his homework.
As for bringing the motion, he said, “I was not afraid to go in and stand up for what was right. If I lose; I lose. I’m in no worse position than when I started.” No one can argue with that reasoning.
As I’ve indicated in some past articles, just because a trustee strongly and loudly enunciates a particular position does not mean the trustee is correct. Always consider presenting your issue to the Court if you believe you have a solid basis for doing so. As the debtor’s spouse said, you have nothing to lose. Congratulations to him!
Perhaps Debtors Do Not Have to Turn Over Tax Refunds — A Big Issue for Another Day
I was greatly intrigued by one particular statement that Judge Grossman inserted in the decision: “The parties have not raised, and this Memorandum Decision does not address, whether it is appropriate for the Trustee to require the turnover of the Debtor’s post-confirmation tax refunds.
This leads me to ponder if the Judge questions whether Chapter 13 debtors should uniformly commit their tax refunds to the plan. Perhaps there are some exceptions to our local practice. This would certainly be a major issue, but that is a subject for another day.
About the Author. Long Island Bankruptcy Attorney Craig D. Robins, Esq., is a regular columnist for the Suffolk Lawyer, the official publication of the Suffolk County Bar Association in New York. This article appeared in the DECEMBER 2010 issue of the Suffolk Lawyer. Mr. Robins is a bankruptcy lawyer who has represented thousands of consumer and business clients during the past twenty years. He has offices in Mastic, Patchogue, Commack, West Babylon, Coram, Woodbury and Valley Stream. (516) 496-0800. For information about filing bankruptcy on Long Island, please visit his Bankruptcy web site: http://www.BankruptcyCanHelp.com.
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Quick Links to Tax Week Blog Posts About Tax Refunds and Bankruptcy
This past January, for an entire week, I posted a series of articles every day about tax refunds and bankruptcy. Here are some quick links to these articles: