For many people, one of the most worrisome prospects when considering filing Chapter 7 bankruptcy is the loss of their home, and for good reason. Chapter 7 bankruptcy involves the liquidation of a debtor’s assets and distributing the money raised among the debtor’s creditors. The determination of what assets to liquidate is made by a bankruptcy trustee, and can in some cases involve the sale a person’s home. Fortunately for debtors, the bankruptcy code allows debtors who file to claim certain exemptions, which exempt certain categories and amounts of property from being included in the assets that are liquidated.
The Homestead Exemption
Among the various exemptions is one specifically for a person’s home. Under New York law, a person can exempt between $75,000 and $150,000 of the value of their home from a bankruptcy, depending on the county in which the home is located. This means that if a debtor has no equity in their home or less equity than the amount of the applicable exemption, the bankruptcy trustee will likely not force a sale, as there would not be any money left over after the sale is made to distribute to creditors. As a result, in many cases, the homestead will allow a person to keep their home while discharging many of their other debts.
The Automatic Stay
When a person files for bankruptcy, an automatic injunction is filed that immediately puts a halt to all collection activity, including foreclosures. In addition, during the period the automatic stay is in effect, no new collection activity may be initiated. Consequently, home owners who have fallen behind on their mortgage payments and are facing foreclosure may be able to delay the foreclosure long enough to make alternative arrangements or to raise funds in order to bring their mortgage current. In the alternative, if a debtor is unable to get current with his or her mortgage, and the house is not liquidated as part of the bankruptcy, foreclosure proceedings will recommence upon the expiration of the automatic stay.
Contact a Long Island bankruptcy attorney today to schedule a free consultation
Whether bankruptcy is right for you depends of a variety of factors. Discussing your circumstances with an attorney familiar with New York bankruptcy law will is the best way to determine whether you could benefit from filing. To schedule a free consultation, call our office today at (631) 479-2455.