Homestead Exemption in NYC
When people file for bankruptcy what they often worry about is what they will be allowed to keep and what they will lose. What you are allowed to keep depends on exemptions, which are items of property that the debtor is able to keep despite filing for bankruptcy.
Each state can have its own list of exemptions, and there is a federal exemption list as well. Each state has the right to restrict debtors in that state to the state’s own list of exemptions or the state can allow debtors within its borders to use the federal scheme. In New York, there is a state list and the debtor has the choice of using that state list or using the federal list. However, it is one or the other – you cannot pick some exemptions from one list and some from the other list.
The homestead exemption on the federal list is limited to $22,975.00 at this time. The amount increases slightly every three years, and just increased in April 2013. Occasionally, this will be enough because the exemption has to cover only the equity in a house, not the full value. If you have a house worth $300,000 and a mortgage with a balance of $280,000, you have equity of $20,000, and it would be covered by the federal exemption. In many cases, however, there is more equity that needs to be covered. In such cases, the debtor will opt to use the New York exemptions, provided for in New York’s laws.
The homestead exemption under New York law is set up with a unique structure, in that it is based on where you live. The minimum amount is $75,000 and can go up to $150,000. The largest amount, $150,000, is for homes in the five counties that make up New York City, Kings (Brooklyn), Queens, New York County (Manhattan), Bronx and Richmond (Staten Island), as well as counties close to the city, namely Nassau, Suffolk, Rockland, Westchester and Putnam. When you get a away from New York City, the amount is decreased. You can exempt $125,000 in Dutchess, Albany, Columbia, Orange, Saratoga and Ulster Counties. And the amount goes down to $75,000 for all other counties.
In order to qualify as a homestead exemption, the law says that it has to be occupied as the principal residence of the debtor. The exemption covers houses, condominium units, cooperative apartments and mobile homes.
In cases where a married couple files for bankruptcy together and they own the home together, the exemption amount is doubled. For people who own a house jointly with others, the amount applies only to their share of the equity. Thus, if someone owns a house with their non-filing spouse, or with a sibling, and the equity is $100,000, the debtor has only $50,000 of equity and can exempt it all under New York’s laws.
Exemptions are not automatic. They have to be claimed, and they are claimed by properly filling out Schedule C of the bankruptcy petition. If one fails to claim an exemption, the trustee can sell the property even though it could be kept as an exemption. It usually does not come to this because one can amend the exemption schedule if for some reason they did not properly claim their exemptions, but it is something that should be done right the first time.
One final thing to remember is that exemptions are good against the bankruptcy trustee and against creditors. However, in order to keep the house, even if an exemption is claimed, the mortgage still has to be paid. Exemptions cannot stop the bank from foreclosing on the house if the mortgage is not paid.
Claiming exemptions can be technical and often needs the advice of a bankruptcy attorney, but if done properly, most people who file in New York are able to keep their homes through their bankruptcy so long as they are able to keep up their mortgage payments.