FAQs

Bankruptcy

What is Bankruptcy?

Bankruptcy is a right provided by the United States Constitution for people and other entities to pursue relief from some or all of their debts through the Bankruptcy Court.

Broadly, consumer bankruptcy can be described as:

Chapter 7 (Liquidation), which offers a discharge of debt for qualified debtors who are allowed to keep certain exempt property, including some equity in a principal residence, while turning over non-exempt assets to the Chapter 7 Bankruptcy trustee to satisfy creditors. The Bankruptcy trustee will schedule a “341” meeting to review the paperwork with the debtor and ask questions about assets, and if the trustee and the bankruptcy judge approve the filings, the debtor will be granted a discharge of eligible debt. If a homeowner’s equity is exempt, then he/she can retain the home and sell it after discharge.

Under New York Civil Practice Law and Rules § 5206, the debtor’s principal residence is exempt in bankruptcy up to the following amounts (2021 figures):

$179,975– Nassau, Suffolk, Kings, Queens, New York, Bronx, Richmond, Westchester, Rockland and Putnam Counties;
$ 149,975– Dutchess, Albany, Columbia, Orange, Saratoga and Ulster Counties;
$ 89,975– All other counties.

Chapter 13 (repayment plan) allows the debtor to make a formal plan (with Court approval) to repay certain debts, including delinquent mortgage payments, over a three- or five-year plan.

A Chapter 13 Bankruptcy offers debtors a number of advantages over liquidation under chapter 7. Most importantly, a Chapter 13 Bankruptcy offers debtors an opportunity to save their homes from foreclosure. By filing under this chapter, individuals can stop foreclosure proceedings and possibly cure delinquent mortgage payments over time (3-5 years). However, they must still make all mortgage payments that come due during the Chapter 13 plan on time. Another advantage of Chapter 13 is that it allows individuals to “reschedule” secured debts and extend payments over the life of the Chapter 13 plan.

Corporate Bankruptcy

Chapter 11 is a reorganization of a debtor’s business, debts, and assets. A Chapter 11 gives the debtor a fresh start. Once the debtor completes its obligation under the claim of reorganization.

Determining what type of bankruptcy is best for each debtor and what is, and what is not, dischargeable debt requires careful legal analysis.

What is the benefit of Bankruptcy?

Depending on the debtor’s financial situation, the nature of the debts, the type of bankruptcy chosen, and the debtor’s history of bankruptcy filing, a debtor is ordinarily entitled to a stay (freezing debt collection efforts), have a chance to discharge some or all debts or pursue a repayment plan to become current on debt payments. As discussed, a Chapter 13 is regularly used to retain a debtor’s principal residence.

Chapter 7, Chapter 11 and Chapter 13 Bankruptcy further explained.

A Chapter 7 Bankruptcy allows a qualified debtor to discharge certain debts, while a Chapter 11 allows companies, or in rare cases individuals, a chance to format a bankruptcy reorganization plan to “cram down” debt payments typically with a reduction in amounts owed. Most consumer choose between a Chapter 7 or Chapter 13 Bankruptcy.

In most cases, a person filing for bankruptcy (and this can be an individual or married couple) will choose a Chapter 7 – if they qualify – and discharge certain debt.

If the individuals do not qualify for chapter 7 relief, they can pursue relief under Chapter 13, which may require 3-5 years of careful budgeting and timely payments under an approved plan.

Under Bankruptcy law, there are certain “non-dischargeable” debts such as intentional tort judgments (think assault), certain divorce & child support obligations, and certain tax debts.

Who Can File a Chapter 7 Bankruptcy?

Anyone who lives in, does business in or owns property in the United States can file a Chapter 7 bankruptcy petition.

Can I keep my assets if I file for bankruptcy?

The bankruptcy code provides exemptions that permit individuals to keep their cars, homes, furniture, some retirement accounts.

What is a Chapter 13 bankruptcy?

A Chapter 13 is a bankruptcy that includes a payment plan to repay some or all of your debt over a period of time. If you are in arrears on your mortgage payments, a Chapter 13 places a hold on foreclosure and allows you time to pay off your mortgage.

Trusts & Estates

How can estate planning assist with asset protection?

Most of us spend our lives trying to build not only a nest egg for our own retirement, but also an estate that we can leave to our heirs or loved ones. However, the costs of living as a senior have gone up exponentially in recent years, especially for residents of Long Island and/or the five boroughs of New York City, where real estate taxes or rent expenses can drain those assets very quickly. Even more concerning is the potential that you and/or your spouse may require long term care in a nursing or rehab facility, where costs can easily be $10,000+ per month.

This is where a carefully planned estate management plan can help. If you own your home and/or other valuable assets in your own name, you will not qualify for Medicaid to assist you with long term care expenses. However, if you move those assets out of your name, you may be able to protect those assets from Medicaid for your heirs.

Medicaid has a five year look back period, which means that attempting to move your assets out of your name when you’re already in need of long term care will not work. Any transfers of your property have to be made at least five years prior to your application for Medicaid in order to qualify for protection, otherwise you will be subject to penalties. If you move said assets into an estate planning mechanism, like a life estate or an irrevocable trust, they can be protected from a Medicaid lien after five years have passed so that your heirs will inherit them as per your wishes.

Keep in mind- the only way you will protect assets from Medicaid is by relinquishing your ownership and control of those assets. Once the assets are moved, you will no longer own them, and you will not be able to change your mind to regain control or ownership of those assets. This is why it’s important to have a plan on who you want to control the assets (your trustee) and who you want to inherit the assets (your beneficiaries). This does not mean that you would lose the right to live in your home. You can retain a life estate wherein you retain the ability to live in a property until you pass away or decide to live elsewhere. You can also allow for the trustee to sell your home and buy a different property in which to live. However, the final decision on all of these matters will now lie with your trustee, and all transactions will be handled by the trustee, rather than by yourself. Additionally, you will no longer own these assets for tax purposes, so any gains/losses will be born to the trust rather than to you as an individual.

Please keep in mind that gifting your assets to others will generally not protect you from creditors (who can propose that these transfers were meant to defraud them from collecting a judgment against you) or from Medicaid. Even though the IRS will allow you to transfer “gifts” to friends and family up to a certain amount each year tax free ($19,000 per person for 2025), this tax exemption does not apply to Medicaid protection. If you gift any money within the five year period prior to applying for Medicaid, you will be penalized based on the amount gifted.

There are several mechanisms that can assist you with asset protection, so it is important to speak with an attorney who is well versed in estate planning to determine your best course of action. What works for one person may not work for the next, and you need to find the solution that is best for yourself.