In a surprise move, as one of his final acts as governor, David Paterson signed into law a number of significant changes to the New York’s exemption laws. These changes will undoubtedly change the way in which consumer bankruptcy cases proceed in New York, with greater options and protections for debtors and reduced recourse for creditors and trustees in bankruptcy.
Historically, the foundations of New York’s exemption laws begin in 1850. New York enacted its first homestead exemption, exempting from execution an occupied residence up to $1,000.1 In Robinson v. Wiley the Court of Appeals explained the policies underlying the then recently enacted homestead exemption:
The statute is founded upon considerations of public policy, and has introduced a new rule in regard to the extent of property which shall be liable for a man’s debts. The legislature were of opinion, looking to the advantages belonging to the family state in the preservation of morals, the education of children, and possibly even, in the encouragement of hope in unfortunate debtors, that this degree of exemption would promote the public welfare, and perhaps in the end, benefit the creditor.2 These policy considerations continue to be recognized to this day, as did the Second Circuit in CFCU Community Credit Union v. Hayward,3 and serve to reinforce the importance of the homestead exemption under New York law. The personal property exemptions available in New York have existed even longer than the homestead exemption, and are similarly grounded in a policy of protecting debtors from complete destitution.4
In 1962, CPLR § 5206 and §5205 replaced earlier versions of New York’s homestead and personal property exemption statutes.5 Section 5205 lists what personal property is “exempt from application to the satisfaction of money judgments.” This section has been amended numerous times, but the items listed as exempt, as well as the dollar value that may be exempted with respect to each item, have changed little.Section 5206, has, on the other hand, seen the dollar value of the homestead exemption raised since its enactment. The section was amended in 1969 to increase the exemption to $2,000,6 and again in 1977 to $10,000.7 The 1977 amendment contained an anti-retroactivity clause, barring its application to debts incurred prior to its enactment.8
In 2005 the homestead exemption was increased to $50,000.9 This amendment did not contain an anti-retroactivity clause, and was interpreted by the Second Circuit to apply retroactively to debts incurred prior to the amendment’s effective date.10 In coming to this conclusion, the court relied heavily on the amendment’s legislative history, highlighting the following notes from the legislative sponsor memo: This bill proposes to increase the homestead exemption to $50,000, a much more realistic figure. The current amount, which is 22 years old, is not at all realistic in today’s economy. To have the figure so low is tantamount to having no exemption at all. … This bill will help to provide some relief from the stringent bankruptcy law recently passed by Congress.11
According to the Second Circuit, “the State Legislature’s action on the homestead exemption increase appears to have been partly precipitated by Congress’s passage of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.”12 The federal Bankruptcy Code permits states to “opt out” of the federal scheme of bankruptcy exemptions.13 In 1982, New York did just that, through enactment of Section 284 of the New York’s Debtor & Creditor Law (“DCL”).14 This section states that New York debtors “are not authorized to exempt from the estate property that is specified under” Section 522(d) of the Bankruptcy Code.15 That is, New York bankruptcy exemptions are governed by the CPLR and the DCL, rather than the Bankruptcy Code. DCL Section 282 was also enacted to enable a New York bankruptcy debtor to exempt the real and personal property described in CPLR Sections 5205 and 5206, insurance policies and annuity contracts, a car (up to $ 2,400), and certain rights to receive benefits and property.16 DCL Section 283 was also added to permit the retention of some cash, subject to certain limitations.17 With the exception of the 2005 amendment to CPLR Section 5206, a New York domiciliary’s exemptions in bankruptcy remained relatively unchanged until Governor Paterson signed into law Assembly Bill A08735A. The amended exemptions went into effect on January 21, 2011, and drastically change what a New York debtor may retain in bankruptcy and in collection suits generally. DCL Section 285 was also added to permit New York debtors to use the federal scheme of exemptions provided in the Bankruptcy Code.18 Thus, New York debtors filing will now be permitted to apply the exemptions found under either New York law or the Bankruptcy Code, but will not be permitted to pick and choose exemptions among the two.19 And, because the latest amendments do not contain an anti-retroactivity clause, they arguably apply retroactively in light of the Second Circuit’s holding in CFCU Community Credit.
The chart below sets forth each exemption available under New York law, before and after these recent amendments, as well as the corresponding or related Bankruptcy Code exemption in light of DCL section 285. Certain provisions list numerous exempt items, therefore where there has been no change with respect to a particular item it was omitted from the chart, e.g., CPLR § 5205(a)(1)’s exemption of a sewing machine.
It is important for attorneys practicing in the area of bankruptcy to be fully knowledgeable of these recent changes, their effect and their proper use. In representing debtors, it is crucial to provide for the debtors maximum available exemptions. Having to compare and contrast the federal exemptions with the applicable exemptions allowed under New York State law will add an extra layer of attorney review when representing debtors. Trustees will undoubtedly be more watchful of these changes and the exemptions available.
Joseph S. Maniscalco is a Partner at LaMonica Herbst & Maniscalco, LLP concentrating in bankruptcy litigation and commercial business transactions. Rachel Corcoran is an associate in the bankruptcy department.
1. 1850 N.Y. Laws Ch. 260.
2. 15 N.Y. 489, 494 (1857).
3. 552 F.3d 253, 260 (2d Cir. 2009) (quoting Robinson and noting that “[c]ourts have long recognized the strong policy considerations underlying New York’s exemption statute”).
4. See Morse v. Goold, 11 N.Y. 281, 289 (1854) (“The propriety of exempting certain articles of small value, but which were considered important to the comfort of the family of the debtor, was engrafted upon the law of the state from before the revision of 1813, and the list of exempt articles has been from time to time increased down to the passage of the act of 1842[.]”); see also New York v. Avco Financial Service, Inc., 50 N.Y.2d 383, 387-88 (1980) (discussing New York’s personal property exemption law, noting that “[f]rom its inception, this statute – along with its venerable antecedents – has embodied the humanitarian policy that the law should not permit the enforcement of judgment to such a point that debtors and their families are left in a state of abject deprivation”).
5. 1962 N.Y. Laws ch. 308 (effective Sept. 1, 1963).
6. 1969 N.Y. Laws ch. 961 (effective Jan. 1, 1970).
7. 1977 N.Y. Laws ch. 181 (effective Aug. 22, 1977).
8. Id. at § 2.
9. 2005 N.Y. Laws ch. 623 (effective Aug. 30, 2005).
10. CFCU Community Credit, 552 F.3d at 263.
11. Id. at 263 (quoting N.Y. Spons. Memo., 2005 A.B. A8479).
12. Id. at 265.
13. 11 U.S.C. § 522(b).
14. 1982 N.Y. Laws ch. 540 (effective Sept. 1, 1982).
15. N.Y. Debtor & Cred. L. § 284.
16. 1982 N.Y. Laws ch. 540.
18. N.Y. Debtor & Cred. L. § 285 (effective January 21, 2011).
19. 11 U.S.C. § 522(b)(1) (permitting an individual debtor to exempt property listed under section 522(d) “or, in the alternative,” property exempt under applicable state law); see In re Applebaum, 422 B.R. 684 (B.A.P. 9th Cir. 2009) (“A debtor cannot pick or choose among these option: he or she must elect the exemptions authorized by state law, or elect those afforded in § 522(d).”).
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