About Me
“ Craig D. Robins, Esq., has been a practicing Long Island bankruptcy attorney for over twenty-four years ”
Bankruptcy Exemptions
Written by Craig D. Robins, Esq.Almost all pensions are protected in bankruptcy proceedings, whether the debtor files here in New York or in any other state
Here’s why: In a 1992 United States Supreme Court case, the court ruled that any pension plan that is “ERISA qualified” is excluded from the bankruptcy estate.
“ERISA” is the Federal Employee Retirement Income Security Act of 1974. Under this act, pension plans, 401-K plans, and other “ERISA-qualified plans” are specifically protected from creditors because of a prohibition from being assigned or alienated.
This means that the pension never even becomes part of the bankruptcy estate. (The bankruptcy estate consists of those assets owned by the debtor which the trustee can go after if the assets are not exempt). When an asset like a pension plan is excluded from the bankruptcy estate, it remains the property of the debtor and the trustee cannot touch it.
Also, since pension plans are not part of the bankruptcy estate, you don’t even have to ascertain whether there is an exemption statute to protect it. It is already protected.
So, simply put, an ERISA-qualified plan cannot be used to satisfy the claims of creditors in a bankruptcy proceeding and should therefore be totally protected.
How can you tell if a pension plan is ERISA-qualified?
Pension plans usually have a pamphlet of information about the plan which contains information about the plan’s tax status. Most employers give a copy of the pamphlet at some point, but if misplaced, additional copies can usually be obtained easily.
The best assurance that a plan is ERISA-qualified is when the plan contains a copy of a favorable ruling letter from the IRS indicating that the IRS has determined that the pension plan is in compliance with the tax code and meets tax qualification requirements. Incidentally, a plan could conceivably be considered tax-qualified even if it has not received a favorable ruling letter from the IRS, and even if it is not in compliance with the tax code, as long as the debtor is not materially responsible for its noncompliance.
One important note: Although the pension plan may be protected, recent contributions, if very large, may not be.
Of course, making sure a pension or retirement account is ERISA-qualified and protected is extremely important. This is one of the many things an experienced bankruptcy attorney should do, and we do this regularly with our Long Island bankruptcy clients.
Written by Craig D. Robins, Esq.
The 2005 Bankruptcy Amendment Act changed how a debtor determines which state’s exemptions statutes to use. If you’ve lived in the same state for the two years prior to filing then you have nothing to worry about. You use the exemptions from that state.
However, if you moved from state to state during the prior two years, then some important rules apply.
The 730-day Rule
If you resided in the same state for at least 730 calendar days continuously (two years) prior to the filing of your bankruptcy petition, then you can use that state’s exemptions.
The 180-day Rule
If you did not live in your current state continuously for at least 730 days, then you must pick the state in which you lived most of the time during the 180 days prior to the 730 days. In other words, the state that must be selected is where you lived most of the time between 2 and 2 ½ years before filing.
The Default Rule
If no state qualifies using the above rules (i.e., you lived in abroad) or if the 180-day state requires current residency or domiciliary to use its exemptions (a tricky issue), then you must use the federal exemptions. The default rule will only apply if you did not live in any state during the 180 day period that began 730 days before filing, or if the state requires current residency or domiciliary.
If You Moved, Seek Advice From an Experienced Bankruptcy Attorney
The above rules can be somewhat confusing. If you moved between different states in the past two or three years, then you should consult with a knowledgeable bankruptcy attorney.
Written by Craig D. Robins, Esq.Exemption statutes are the laws that enable debtors to keep and protect certain assets. There are set values for most exemptions.
Some of the most important exemption categories can be doubled if a husband and wife file a joint bankruptcy petition in the state of New York.
For example, the homestead exemption in New York is $50,000. If a husband and wife file a joint bankruptcy petition, and they own the house together, they can pool their homestead exemptions for a total of $100,000 of bankruptcy protection.
With jointly-held bank accounts, married debtors filing a joint bankruptcy petition can exempt a total of $5,000, rather than the exemption amount of $2,500 per person.
The exemption for cars, however, cannot be doubled, as the exemption amount is per car, and not per person.
Written by Craig D. Robins, Esq.The bankruptcy laws and exemption statutes permit debtors to keep and protect various specified assets in Chapter 7 bankruptcy cases. See Bankruptcy Exemptions in New York .
When an asset is either non-exempt, or greater than the exemption amount, the bankruptcy trustee has the right to liquidate the asset to raise money for the benefit of creditors.
Fortunately for debtors, however, even if an asset is non-exempt or has a value greater than the exemption amount, the debtor may be able to keep it anyway.
Here’s why: If an asset has relatively low value or is hard to sell, the trustee will probably abandon it. In order for a trustee to want to liquidate an asset, there has to be enough net funds to make a reasonable distribution to creditors. If there isn’t, the trustee will walk away.
Also, trustees don’t work for free. Their compensation for liquidating assets comes out of the gross proceeds that they collect. Thus, if a sale will not produce enough to pay the trustee, an auctioneer, and then leave a sufficient net proceeds, the trustee will not bother.
There is no magic amount that trustees will walk away from, but most New York Chapter 7 bankruptcy trustees will not bother to administer any assets that will produce less than a thousand dollars, sometimes even more.
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I recently wrote a post about the additional pressures trustees face in deciding whether to liquidate assets: The Back-Door Politics Behind Trustees Pursuing Non-Exempt Assets .
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Experienced bankruptcy attorneys can do a pretty good job gauging the likelihood of whether a trustee will want to liquidate a non-exempt asset.
Written by Craig D. Robins, Esq.I recently attended a dinner for an attorneys organization that I am a member of and sat with a bankruptcy judge and two Chapter 7 trustees. During the dinner, we had an interesting discussion over whether trustees should liquidate vehicles that had some, but not too much, non-exempt equity.
This conversation began when the judge asked the trustees why they weren’t going after more cars that appeared to clearly have value over the exemption amount. The trustees explained that from time to time the Office of the U.S. Trustee puts pressure on the trustees to either go after, or not go after, certain non-exempt assets.
Apparently, for a period of time, some trustees were seeking to liquidate vehicles with very little non-exempt value, thereby resulting in a very small distribution for creditors in the bankruptcy estate. The primary beneficiaries of such sales were the trustees, who received commissions and legal fees, rather than the unsecured creditors, who barely received pennies on the dollar. Apparently, this was giving trustees a bad name. One of the trustees said that trustees were being called “money grubbing trustees” and other not-so-nice names for doing so.
This trustee explained that at other times, the U.S. Trustee’s Office actually issued totally opposite directives, calling on trustees to be more vigilant and aggressive.
In the meantime, the judge questioned the fairness to creditors if trustees let such assets go. My trustee colleagues countered with these comments: it is simply not administratively convenient to go after an asset that produces such a small recovery for the estate. Also, some debtors do not have the financial ability to offer any settlement to the trustee. The trustee commented that he never saw so many debtors in a destitute situation.
I pointed out the inequity of the New York State exemption statute for vehicles, which, not having been changed in over 25 years, hardly gives consumers any protection at all.
So when a trustee is considering going after a non-exempt asset, the trustee will be guided by comments and directives from the U.S. Trustee that are not made public, comments they receive from the bankruptcy judges, and their own assessment and determination as to whether doing so is feasible and economically worthwhile for the bankruptcy estate.
Bankruptcy Exemptions in New York
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Written by Craig D. Robins, Esq.Consumer debtors who file for Chapter 7 or Chapter 13 bankruptcy in New York, are allowed to keep certain possessions that are “exempt.” Exemptions are statutes which indicate what assets you can keep and protect while eliminating debts in a bankruptcy proceeding.
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Bankruptcy cases filed in New York must use exemptions set forth in New York law. Although there are federal exemptions, they do not apply to cases filed in New York. This is because New York has opted out of the federal exemption scheme. See my post last week: Can Federal Exemptions be Used in New York Bankruptcy Filings?
Some of the more common assets that New York debtors can protect are:
• Bank accounts with a total value of up to $2,500
• Automobiles with total equity of up to $2,400
• Household furniture and personal possessions with a value of up to $5,000
• Retirement and pension accounts
• Homes with a total equity of up to $50,000
A husband and wife who file a joint bankruptcy petition can usually pool their exemptions to double the above amounts.
While there are limitations to these exemptions, most of our Long Island bankruptcy clients are able to keep all of their belongings while reducing or eliminating their debt.
Written by Craig D. Robins, Esq.Of course not. Clothing is protected. When you file for bankruptcyin the State of New York, a consumer can keep and protect a certain amount of clothing.
Although there is a specific dollar amount for personal effects which include clothing, for all practical purposes, all usual and ordinary clothing is exempt and protected. The fact is that a trustee has no interest in trying to liquidate someone’s used duds.
There are only two possible exceptions. One would be an expensive fur coat which actually has to be separately itemized on the schedule of assets in the bankruptcy petition. The other exception might be a collection of expensive designer dresses.
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However, in over twenty years of representing consumer debtors, I have yet to file a bankruptcy case with either.
A debtor will probably be able to keep even once-expensive designer clothes
I did have one client several years ago whose husband, while he was working, earned several hundred thousand dollars a year. The wife had spent over $500,000 on designer clothes in the five-year period before they retained me. In fact, their largest creditor was Barneys, the famous New York clothing store, which was owed about $200,000.
We never had to address how a trustee would handle the designer clothes because the matter was resolved without a bankruptcy filing.
Looking at what happened to former vice-presidential candidate Sarah Palin’s designer clothes, which were very much in the news last fall, the Republican National Committee eventually determined that they only had nominal value and turned them all over to Goodwill, even though they had cost many tens of thousands of dollars. So chances are that even if a consumer who was previously affluent files for bankruptcy owning some designer clothes, the trustee will not care less about them.
The bottom line: used designer clothes, even if they have potential value, are not easy to liquidate. Therefore, even if they may be technically non-exempt, a debtor will probably end up being able to keep them.
Written by Craig D. Robins, Esq.When a consumer files for bankruptcy relief, the bankruptcy laws permit him or her to keep and protect certain assets. These laws are called exemption statutes.
There is a set of exemption provisions set forth in the Bankruptcy Code and they are called the Federal Exemptions. However, in 1978, Congress gave the legislature of each state, such as the state of New York, the ability to “opt out” of the federal exemptions.
This is because for almost 200 years, there has been an issue over whether state rights should include the authority to regulate exemptions. Accordingly, each state can determine whether to use the Federal exemptions or their own state exemptions.
New York has opted out of the Federal Exemptions
I often meet with clients who have read up on bankruptcy law before coming to meet with us and many of them have expressed confusion over whether the federal exemptions apply in New York.
Here in the state of New York, federal exemptions are not used or recognized. There are a number of different New York state statutes which contain exemption provisions. Some of these statutes include the New York Debtor and Creditor Law, the New York Insurance Law, and the New York Civil Practice Law and Rules (CPLR).
Only 16 of the 50 states permit debtors to use the federal exemptions. The remaining states each have their own exemption statutes.
For those readers who live outside of New York, here is a list of states that permit the federal exemptions:
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- Arkansas
- Connecticut
- Hawaii
- Kentucky
- Massachusetts
- Michigan
- Minnesota
- New Hampshire
- New Jersey
- New Mexico
- Pennsylvania
- Rhode Island
- Texas
- Vermont
- Washington
- Wisconsin
Written by Craig D. Robins, Esq.An individual retirement account is certainly exempt in a New York bankruptcy case. However, there is no clear-cut answer as to how much is exempt.
The exemption statute that protects IRA accounts in New York is set forth in the New York Debtor and Creditor Law section 282(2)(e), which totally exempts IRA accounts “to the extent reasonably necessary to support the debtor and the debtor’s dependants.”
Most consumers who file for bankruptcy in New York need not worry about this distinction. I have never seen a situation where a trustee has tried to go after an IRA with a value of a few hundred thousand dollars or less. Most consumers have IRAs that are worth much less than that.
However, what issues would be involved with trying to ascertain if an IRA worth several hundred thousand dollars or more is exempt?
Here the trustee, and ultimately the bankruptcy court, would look at the reasonableness of the debtor needing the full amount of the account. This would result in an analysis of the debtor’s factual situation. In interpreting the facts, the court would also look at Congressional intent and prior case law.
Congress has decided that consumers should be able to protect over a million dollars in an Individual Retirement Account
Let’s first look at what Congress recently determined to be reasonable. The 2005 Bankruptcy Amendment Act changed the federal exemption amount for IRA accounts (Code section 522(n)) by increasing it to $1,000,000 per individual. The Judicial Conference increased this amount again in February 2007 to $1,095,000.
Although New York has opted out of the federal exemption scheme, which means that this provision does not apply to bankruptcy cases filed in New York, we cannot ignore Congress’s evaluation as to what a reasonable IRA exemption is.
Congress determined that a reasonable amount is $1,095,000. As a matter of fact, the federal exemption is not even limited to $1,095,000. The federal statute provides that this amount can be increased “if the interests of justice so require.”
We also need to be mindful of, and accommodate, the significantly strong legislative intent behind the policies and goals underlying the new laws to protect retirement accounts and encourage regular deposits into retirement accounts. This is demonstrated in the various provisions permitting deductions for retirement accounts in the means test. In other words, Congress made it clear that it wants consumers to have retirement accounts.
Accordingly, the legislative intent is certainly to protect a large amount of funds in retirement accounts and encourage deposits into them.
There has not been much New York case law on this issue since the bankruptcy laws changed in 2005. However, most trustee should be persuaded by the above argument. I have already convinced one aggressive trustee to leave a debtor alone whose family retirement accounts were half a million dollars.
Written by Jason S. Leibowitz, Esq..
Boat owner seeks to use homestead exemption to protect boat slip in bankruptcy
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Last week, I had some bankruptcy hearings before Long Island Chapter 7 bankruptcy Trustee Robert L. Pryor. One of the cases that the trustee called first was rather interesting because the debtor was living on a boat and sought to exempt the boat slip by using the homestead exemption.
Bankruptcy attorneys regularly use the homestead exemption to protect a debtor’s home. It was rather unusual that this debtor was seeking to protect a boat slip that he owned, especially considering that he didn’t even own the boat in the slip; he was using a friend’s boat. However, the debtor testified that he lived on the boat which was parked in the boat slip.
Ordinarily, assets such as boats and boat slips are considered luxury possessions that are not protected by exemption statutes. Here, however, the debtor claimed the boat slip was, in essence, a necessity — his home.
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Trustee Pryor seriously questioned the validity of this exemption. “We are going to have to look into this,” he said. “I’m not sure you can exempt a boat slip as a homestead.”
At this point, I thought the debtor had a losing proposition. It didn’t seem possible that a debtor can exempt a boat slip in a Chapter 7 bankruptcy.
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However, I was really curious about this. Upon returning to the office, I decided to quickly check some case law.
The main question presented at the meeting of creditors was whether the debtor could claim the homestead exemption on a property (the deeded boat slip) that he owned but could not technically live in. I found that although the issue appears to remain unreported in New York, bankruptcy courts in other jurisdictions have weighed in on similar issues.
In one Florida case, the trustee objected to debtor’s claimed homestead exemption and moved to compel the debtor to turn over the boat as he believed it was non-exempt property. The bankruptcy court held that the exemption was proper under the state constitutional and statutory provisions since “the boat was a dwelling house berthed at rented dock space that was deemed land the debtor did not own but which he lawfully possessed.” In re Mead, 255 B.R. 80 (Bankr. S.D. Fla. 2000).
The Mead court added that the boat was a dwelling house since it was equipped as a residence, the debtor actually resided on the boat, and the debtor had no other residence. The Florida exemption expressly extended to such dwelling houses situated on leased rather than owned land, and the connection of the boat to the dock provided a sufficient connection to such unowned land.
Another case involved debtors that attempted to protect not only their boat, but also their deeded slip as their permanent residence. Similarly, it was the trustee’s position that, separately, neither the boat dock slips nor the boat itself can create a homestead because the docks cannot be used as a home without the boat, even if it may have been possible that the boat could be used as a home without the docks. In re McMahon, 60 B.R. 632 (Bankr. W.D. Ky. 1986).
The McMahon court held that the boat dock was what provided the boat with the necessary utilities, and noted that exemption laws in favor of the debtor are to be liberally construed. The court concluded that that the statutory provisions for homestead exemptions satisfy a proper legislative objective by providing the debtor and the debtors dependents with a new financial start, and it is incumbent upon the Court to liberally interpret and construe them so that the end sought to be accomplished may not be defeated.
The court analyzed the several factors in arriving at its determination. Those were the following; the amount of time which the debtors had lived on the boat and that they seemed to have no other residence, that the boat dock slips were real estate to which the debtors have a properly recorded deed, and the boat dock slips were an integral part of the debtors maintaining a residence on the boat by providing the necessary utility hookups.
Finally, the McMahaon court analogized that case to one in which a debtor claims a homestead exemption in the real estate upon which a mobile home or condominium is constructed or rested.
In view of the principle that the exemption laws are to be liberally construed in favor of the debtor, the McMahon court found that both the boat and dock slip comprised the debtors’ permanent residence and qualified for the homestead exemption pursuant to Kentucky law.
The research presses home one of the most important policies contained in this country’s bankruptcy laws: that the Bankruptcy Court will usually liberally construe the law in favor of the debtor so that an honest debtor can eliminate debts and get a fresh new financial start.
Thus, the debtor in this Central Islip bankruptcy case may well be able to keep and protect his boat slip and home after all — and discharge all of his debts as well.
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Note: Jason S. Leibowitz, Esq. is a full-time associate in our firm