Can the New York Homestead Exemption Save a Debtor’s Home?

Previous posts here have discussed New York’s statutory exemption of an owner’s equity in a homestead from creditors’ claims in a bankruptcy proceeding. In order to fully understand this topic, a review of the automatic bankruptcy stay is also important.

New York, like all other states, has passed laws that protect the property of its citizens from attachment by creditors. One of the most important of these protections is the exemption that is provided to protect a person’s homestead. The protection provided by this exemption is limited to a specific amount, depending upon which county the debtor lives in.

For example, residents of Rockland County can protect up to $150,000 of the equity in their home, whereas a resident of Duchess County can only protect $125,000. In most counties in the state, the exemption is limited to $75,000. If, for example, a house worth $450,000 bears a mortgage with an unpaid balance of $200,000, the owner’s equity is $250,000, and the exemption will protect only part – $150,000 – of this amount. Thus, the exemption will leave approximately $100,000 available to satisfy the claims of creditors.

A second question is the operation of the automatic stay. If a mortgage is being foreclosed, the foreclosure proceeding will be immediately halted by the filing of the bankruptcy petition. However, if the debtor and the lender are unable to agree on terms for modifying the payment schedule, the remaining equity in the home – $100,000 in the above hypothetical – will be available to satisfy the claims of the lender and perhaps other creditors.