New York bankruptcy is full of jargon as one might expect, so debtors might be tripped up when they hear some of its terminology that doesn’t always mean what it sounds like. Take for example “no-asset bankruptcy” or “no-asset case.” This term sounds like situations in which debtors have no property at all to their names, but this isn’t accurate. Just about everyone who files bankruptcy has some property. The only question is whether a trustee could sell any of it to satisfy unsecured creditors (and the trustee’s commission). So, yes, no-asset cases also include those in which debtors do own property, but the term should really be “no non-exempt asset bankruptcy.” Here are some characteristics of no-asset chapter 7 cases.
If trustees are not going to go after debtors for their toothbrushes, then what is going to distinguish a no-asset case from an asset case? Principally, it’s going to be the extent to which debtors are able to protect their property with exemptions, whether New York’s exemptions or the federal ones. In practice, though, the question will boil down to whether the debtor owns a home (or vehicle) with non-exempt equity. In many cases, homeowning (and motoring) debtors don’t have any equity in their secured property, so it isn’t an issue. Although, when their exemptions don’t fully protect their equity, then they have “asset cases,” and trustees will have to decide whether it’s worthwhile to sell the secured property for the benefit of the unsecured creditors.
The reason the homestead exemption matters is that debtors who don’t own homes, or don’t have equity in them, receive a substantial bonus to their cash wild-card exemptions that can be applied to any property, particularly under the federal exemption rules. For context, the federal exemptions give debtors a $1,250 wild-card exemption plus up to $11,850 in an unused homestead exemption. Under the New York rules, debtors receive less: just $1,100 without a homestead exemption and the lesser of $5,525 or $11,025 minus their personal-property exemptions. A debtor without need of a homestead exemption can protect more than $13,000 in property under the federal rules, and in New York City, where debtors are much less likely to own cars, that will pretty much protect all of their property.
(You can read here for other ways in which New York State’s exemptions differ from the federal exemptions.)
As a result, no-asset bankruptcy cases tend to go much more smoothly and quickly than asset cases. Without anything to liquidate in bankruptcy estates, trustees do not have much to do, and creditors have little reason to contest any of the proceedings or the cases’ outcomes. For nearly all unsecured creditors, no-asset cases are just part of the cost of doing business, and they make up for the losses by charging higher interest rates, penalties, and other fees. The discharge can come in about 90 days, with the case closing soon after that. Other factors can affect a chapter 7 New York bankruptcy timeline that can be of interest to debtors.
Of course, “no-asset” is not the same as “no-income.” Obviously, debtors with no incomes are best served by filing in chapter 7, but some debtors have substantial incomes despite being renters or living in underwater homes. In these cases, it’s still possible and sometimes necessary to file in chapter 13. However, debtors keep whatever property they have in chapter 13 anyway, so long as it leaves creditors no worse off than if the debtors filed in chapter 7. Chapter 13 cases can take three to five years, and some of the unsecured creditors must be paid out of the repayment plan in New York.
If you don’t own much property but are struggling to repay your debts, don’t think that you need to come up with something to repay your creditors. Bankruptcy may be right for you, but all the convenience of a no-asset case can be lost of your petition isn’t prepared properly. To ensure a smooth bankruptcy case, talk to an experienced New York bankruptcy lawyer to handle your case.
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 bankruptcy attorney Brooklyn NY Bruce Weiner for a free initial consultation.
