New York Homestead Exemption: Can Creditors Take My Home?

When a debtor files for bankruptcy or is being pursued by a judgment creditor, there are certain items of property that the debtor is allowed to keep even though he or she owes money.  One of the exemptions is for an interest in the debtor’s home, and is called the homestead exemption. The homestead exemption protects your home from creditors or the bankruptcy trustee if you’ve filed for Chapter 7 protection.

NY Homestead Exemption Varies by County: Different in NYC than Westchester

In order to claim a homestead exemption in the state of New York, the home must be occupied as a principal residence.  The exemption covers the equity in the property.  To calculate the equity, one takes the value of the property and subtracts the balance due on any mortgages.  The difference is the equity.  As an example, if the property is worth $400,000, the first mortgage has a balance of $250,000 and the second mortgage has a balance of $50,000, there is $100,000 in equity.  This is important because the amount of the exemption is different in different parts of the state.  For the counties of New York City, Nassau, Suffolk, Westchester, Rockland and Putnam counties, the exemption is $150,000, so in our example, the entire equity would be exempt.

In Dutchess, Albany, Columbia, Orange, Saratoga and Ulster counties, the exemption is $125,000, so in our example, the entire equity would still be exempt.  However, in the rest of New York State, the exemption is only $75,000, and in our example, $25,000 of the equity would not be protected.  This means that if a creditor had a judgment against the homeowner, the house cold be sold to pay off the judgment.  The homeowner would get the first $75,000 from the sale (after the payment of the mortgages) with the remainder to go to the creditor.

These exemptions apply in a bankruptcy case, and if the debtor has equity of less than the limits, he or she will not lose the home if a bankruptcy is filed.

New York Homestead Protection is Automatic

The exemption is automatic – nothing has to be filed ahead of time to claim the exemption.  When the house is owned by more than one person, each owner get their own exemption.  Thus if a husband and wife own a house in New York City, the total exemption is $300,000.

If the owner has to file a bankruptcy case and the exemption does not cover the entire equity, all is not lost.  If the owner files under Chapter 13 of the Bankruptcy Code, and the amount that is paid out to creditors through Chapter 13 Plan is more than the unprotected equity, they will be able to keep their home.

While the New York exemption for a home is not unlimited as it is in some states, it is usually enough to cover the entire equity.  In my practice, I have had very few cases where a debtor in a bankruptcy case has more equity than the exemption limits.


About Allan Bloomfield
