Sometimes debtors owe less than the value of their assets, raising the question of whether they can file a consumer Brooklyn bankruptcy case at all. It seems like the answer should be no because bankruptcy should only be for people in desperate circumstances, but in truth the answer is a resounding yes for a bunch of reasons. Here are three.
(1) Not all debtors file in chapter 7. Most Brooklyn bankruptcy debtors file in chapter 7, and it happens to match their perception of the process: The bankruptcy trustee gathers all of a debtor’s assets (if any) and then liquidates them for the creditors, discharging the rest. However, many debtors choose to file in the other chapter commonly used by consumer bankruptcy debtors: chapter 13. In this chapter, debtors regularly own more than they owe. You can click to read more about chapter 13 bankruptcy, but the advantage for positive-net-worth debtors exists.
(2) Not all debtors want to discharge debts. Many debtors choose to file bankruptcy not to discharge debts but to achieve other goals. A very common one is preventing a foreclosure on their homes or an eviction from an apartment. Another is stripping a junior lien off an underwater mortgage, though this can only be achieved in chapter 13. For many debtors bankruptcy is a tool to accomplish specific goals instead of general ones like a discharge.
(3) Not all debtors’ assets can’t be protected by exemptions. There are many situations in which debtors can file while shielding all of their assets with exemptions even if those assets could cover those debts. This situation in particular might seem like an abuse of the bankruptcy system, but it most certainly is not. With the federal exemptions, debtors can protect $1,250 in assets, plus up to $11,850 in an unused homestead exemption. With the New York State exemptions, debtors who don’t take a homestead exemption receive $1,100 plus the lesser of $5,525 or $11,025 minus their personal-property exemptions. The federal exemptions are more generous to debtors who don’t need a homestead exemption, so it’s fully possible that debtors with only $8,000 in credit-card debt will want to discharge it even if they have more valuable assets to protect.
The more notable situation is when debtors do own their homes. Debtors living in New York City’s five counties, plus Nassau, Suffolk, Rockland, Westchester, and Putnam counties get a $170,825 exemption. In Dutchess, Albany, Columbia, Orange, Saratoga, and Ulster counties, it’s $142,350, and everywhere else it’s $85,400. These numbers double for married couples, so a New York City bankruptcy couple can exempt $341,650 in home equity. This means they can discharge a significant amount of consumer debt. For these debtors, a “solvent” bankruptcy can be a very good idea.
One final, important asset that’s common among solvent debtors are retirement accounts, which are almost always fully protected in a bankruptcy.
More important than how much debtors own is how much the make, i.e. their incomes. Debtors who own significant assets can still make use of bankruptcy and may even need it. If you are experiencing financial problems despite your assets, then consulting with an experienced New York bankruptcy lawyer may be able to help you more than you think.
For answers to more questions about bankruptcy, when to file, 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.