Bankruptcy Game Changer May Be Coming Soon

A new law amending New York’s exemptions may be coming very soon. One thing it may do is increase the homestead exemption. This could make Chapter 13 an excellent option for homeowners who have equity but are behind on their mortgage payments and have credit card debts that they cannot currently afford. With increased exemptions, many homeowners may qualify to keep their homes, reinstate mortgage arrears over 5 years (and also try a loan modification) and also pay their unsecured debts (such as credit cards) only a small percentage (possibly 10% give or take) even if they have $150,000 in equity in their home.

For those who might have tried a loan mod and been denied already, or those who would expect to be denied, the new exemptions might help them keep their home anyway in Chapter 13. The gist of it is this – many homeowners have enough income to pay their mortgages or their credit cards but not both. In Chapter 13, the new exemptions may have the effect of freeing up income that would have otherwise been required to go to pay credit card debt – so that even if a loan mod is denied, the homeowner may still now have extra available income to pay off the mortgage arrears. A higher exemption has the effect of decreasing the liquidation value of a bankruptcy estate and thereby decreasing the percentage required to be paid to unsecured creditors under what is known as the “best interest of creditors test.”

This all requires math and needs to be evaluated on an individual basis. If you want to schedule a free telephone consult or an office consult (there is a charge), please email (scott@laninlaw.com) or call me at 212-764-7250 x 201 or fill out our free consult form linked to this page on the right.

Here is the official bill. Take note of the amendment to CPLR 5206(a) in particular.