New York Bankruptcy Exemptions Protecting Bank Accounts and Income
Western New Yorkers who file bankruptcy have the choice between federal and state bankruptcy exemptions. In the majority of cases we file for our clients, we elect the federal exemptions. That’s because the federal exemptions offer what is known as a “wildcard” exemption, which allows a debtor who does not need a homestead exemption to exempt up to $13,100 of any property of any kind, including cars, boats, jewelry, and even other real estate. The exemption is doubled for married couples. This is an incredibly valuable exemption.
Nevertheless, there will still always be plenty of cases in which a debtor needs the New York exemptions because the debtor has more than $20,000 or so equity in their homestead. In these cases, the debtor does not have any obvious exemption to protect any cash assets, such as bank accounts, tax refunds, or actual cash on hand. A chapter 7 trustee can and will pursue cash assets and tax refunds even if the total of these non-exempt assets is even $1,000. While this may not seem like a lot of money, Chapter 7 trustees are paid a commission for any funds they collect for creditors, plus legal fees, and the trustees therefore have an incentive to pursue assets. The base pay for the chapter 7 trustee is a meager $70 per case. It’s the “asset” cases that create the windfall recoveries for trustees.
So is there any way to protect cash or bank accounts for debtors who have significant equity in their home? The short answer is yes. For years, we have have been utilizing the New York CPLR 5202(l) to protect some cash assets even for clients who need the homestead exemption. This law creates an exemption of up to $2,850 (adjusted periodically) for funds that are direct deposited into a bank account. The exemption is not automatic. You will have to demonstrate that at least some of the funds in the account are “statutorily exempt,” but this should not be hard to do because most potential bankruptcy clients have at least some type of exempt money going into their account. Obvious examples of exempt funds include pension, child support, veterans’ benefits, social security, workers’ compensation, and disability.
A less obvious (but very important) source of exempt funds for most people is payroll deposits. Virtually all employees now have at least a part of their earnings direct deposited into a bank account, and under CPLR §5205(d), ninety percent of wages earned during the prior 60 days are exempt from creditors. Therefore, if your client files bankruptcy and had even one dollar of earnings direct deposited into an account during the preceding 60 days, then he or she should be able to exempt the full $2,850 in that account. This is because the law does not require that the debtor prove that all the money in the account came from an exempt source – just that some portion of it did.
There are very few cases in which a chapter 7 or chapter 13 debtor has any cash or money in their bank accounts that doesn’t stem from a fundamentally exempt source. If you ask the debtor the right questions, there is almost always an angle to protect modest amounts of cash, even where the full NYS homestead exemption is needed.