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Federal And New York State Bankruptcy Exemptions

If you're filing for Chapter 7 bankruptcy in New York, it's imperative that you understand federal and state exemptions. Bankruptcy exemptions are vital because they can help you retain ownership of certain property. After all, the last thing you want, after you've filed for bankruptcy, is to be left without your most cherished assets or feeling as though you should've chosen federal exemptions instead of state exemptions, or vice versa. But how do you know which exemption list is right for you? Continue reading below to learn more.

New York Bankruptcy Lawyers Are Here To Help You

If you have reached a breaking point in your financial situation, you should consult with an experienced bankruptcy attorney. Law Office of Simon Goldenberg helps New York clients resolve financial dilemmas through bankruptcy or other legal avenues. To consult with Law Office of Simon Goldenberg, call (888) 301-0584 or contact us online today.

What Is Bankruptcy?

Before we differentiate federal bankruptcy exemptions from state bankruptcy exemptions, let's discuss Chapter 7 bankruptcy and how it works. Chapter 7 bankruptcy is the most common bankruptcy chapter. Most people choose Chapter 7 bankruptcy over Chapter 13 bankruptcy because Chapter 7 bankruptcy allows you to start fresh. Chapter 13 bankruptcy puts you on a payment plan for three to five years, whereas the most preferred bankruptcy chapter wipes out most of your financial obligation to your creditors.

To understand why exemptions are so important, you'll need to know how Chapter 7 works. Your bankruptcy trustee will liquidate your assets and take the profit from this liquidation to pay off your creditors. If there's any money left over, it goes back to you. In other words, your credit card debts, personal loan debts, medical bill debts, and more should be erased. But despite this significant benefit, many debtors are anxious to keep specific assets, such as their homes or cars, away from liquidation.

Exempt Or Non-Exempt

Your assets are exempt if they're equal to or below the state or federal bankruptcy exemption threshold. Your assets are not exempt if they exceed the state or federal bankruptcy exemption threshold. The best exemption for you depends on which property of yours has more equity and which property you'd most like to keep.

State Exemptions

New York's state exemptions change every three years to reflect inflation. These numbers are current as of April 1, 2021.

If most of your equitable value is in your home, co-op, condominium, or trailer, a state exemption is bound to give you more bang for your buck. With state exemption, you can keep your place of residence so long as its equity is equal to or below $149,975 if you live in Albany, Columbia, Dutchess, Orange, Saratoga, or Ulster county; $179,950 if you live in Bronx, Nassau, New York, Putnam, Queens, Richmond, Rockland, or Westchester county; or $89,975 if you live in any other New York county.

Say that a fair portion of your equity rests with your tools of the trade. State exemption laws will allow you to keep them so long as they don't value more than $10,000. Federal exemptions will only allow you to keep them if they aren't valued at more than $2,525. The motor vehicle exemption category is another huge pay-out discrepancy for these two exemptions. For one, federal exemptions don't bother carving out a caveat for disabled drivers, whereas state exemptions do. Federal exemptions cover your car up to $4,000. State exemptions cover your car up to $4,825 if you're not disabled and $11,975 if you are disabled.

State exemptions also cover a broader range of retirement accounts. Federal exemptions only protect your tax-exempt and (Roth) IRA accounts. However, state exemptions will protect your IRA, 401(k), and other retirement accounts; volunteer ambulance and firefighter retirement accounts; teacher's retirement account; public retirement accounts, and more. Therefore, state exemptions may be preferable if a significant amount of your equity is in your retirement account(s).

Federal Exemptions

Yet, there are some upsides to choosing federal exemptions. For one, if your assets have a low equitable value rate, it may be in your best interest to choose federal exemptions.

Federal exemptions let you retain up to $13,400 worth of household items, kitchen appliances, books, musical instruments, furnishings, and animals or crops. Yet, each item must not have equity over $625. On the other hand, jewelry can't value more than $1,700. Most of all, your home can't value more than $25,150 if you're one person; it can't value more than $50,300 if you're a married couple who jointly own the home.

It's important to remember that if your property has too much equity to safeguard it from being liquidated, your bankruptcy trustee will return any portion of the excess amount to you. For example, suppose your jewelry's equity values at $2,000, and you choose federal exemptions. Only $300 from your jewelry will go towards your creditors, and the rest (i.e., $1,700) will be returned to you.

Why Do I Need A Bankruptcy Lawyer?

Retaining ownership of your property is important to you. Although you're eager to climb out of debt, it goes without saying that you also want to keep some of your assets, such as your home, car, and jewelry. Even just knowing which assets to try to keep and which assets to surrender for liquidation can be frustrating and complicated, which is why you should only make these decisions with the help of a professional. The lawyers at Law Office of Simon Goldenberg are those professionals. We have years of experience you can trust, so call our New York bankruptcy lawyers at (888) 301-0584 or contact us online for a free consultation.