Perhaps most parents—and certainly most grandparents—made it through high school with only paper and pencils. In a chapter 7 New York bankruptcy, these items would have nearly no value to a trustee. Even so, the state provides a sizeable $550 exemption for books that debtors can apply to their kids’ school books. It’s not like those are very expensive anyway. These days, though, most high-school students, and even going down to elementary school pupils, own some kind of mobile device. These devices, and the data plans that they require for use, are now serious assets in bankruptcy in a way that notebooks are not. Here’s how bankruptcy treats these items.
Starting with the actual mobile device itself, these can have serious value, and debtors can’t plausibly fit them into a book exemption, state or federal. It’s true that the New York exemptions allow debtors to exclude one computer and one cell phone of any value. This is fine for the filing parent-debtor, but the debtor’s children might not be so fortunate, so who owns the device matters.
Debtors have a few options: claim the child owns it as a gift, fit it into a different exemption, or prove that the school owns the device. A trustee might fight a debtor who claims the phone is an outright gift, arguing it’s a fraudulent transfer, especially if the debtor recently acquired the device. Conversely, if the child’s device is an older model, then the trustee might not bother.
Alternatively, a debtor might be able to fit the child’s mobile device into another exemption, most likely New York’s wild card exemption worth $1,100. However, this exemption only applies to debtors who do not take the state’s homestead exemption, which is worth a lot. An eligible debtor may also want to prioritize other items than a child’s expensive mobile device. Or, the debtor might try the aforementioned $550 books exemption by arguing that the device is for school and like a textbook should be exempt for the same reason. This isn’t a plausible argument, but again, if the device has little resale value, the trustee might simply ignore it.
Debtors who choose the federal exemptions, on the other hand, receive a $1,250 wild card exemption plus up to $11,850 in an unused homestead exemption. A mobile device can easily fit into this, but the extra $150 might not be worthwhile.
Finally, according to a report by an advocacy group called Project Tomorrow, a surprising 32 percent of high-school students received their mobile devices from their schools. That figure falls to just 30 percent for middle schoolers and as much as 25 percent for third through fifth graders. Startlingly, many school districts apparently believe that children’s technological access is so crucial to learning that they’re paying for it themselves. The benefit to debtors is that so long as the device belongs to the school, then it stays out of the bankruptcy estate. However, if the school merely sold the device to the students’ parents, then debtors are back to the options listed above.
The Project Tomorrow report is here.
This covers the physical mobile device, but for brevity, I’ll save the cellular and data plans for another time. If you’re concerned about how bankruptcy would affect property that you’ve purchased for your child, then discussing it with an experienced New York bankruptcy lawyer can help.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.
