CHAPTER 7 BANKRUPTCY IN NEW YORK: WHAT ASSETS CAN YOU KEEP? 

The biggest fear most people bring to a bankruptcy consultation is losing everything they own. The worry is understandable. The actual law is far more protective than the worst-case story in your head. 

Chapter 7 bankruptcy New York is designed to give honest debtors a fresh start. The system uses a set of exemptions to keep essential property in your hands. 

The question is rarely whether you keep anything at all. The real question is which assets sit on which side of the exemption line. 

This guide walks through Chapter 7 bankruptcy New York rules in 2026. It covers the Chapter 7 means test, the bankruptcy exemptions NY filers can choose between, and how a liquidation bankruptcy attorney maps out the right strategy for each family. 

What Chapter 7 Is 

Chapter 7 is the form of consumer bankruptcy known as liquidation. The trustee gathers any non-exempt assets, sells them, and distributes the proceeds among creditors. Most consumer cases produce no asset sale at all. 

In exchange, qualifying debts are discharged. The discharge wipes out personal liability for credit card balances, medical bills, old utility debts, repossession deficiencies, and many other obligations. 

Chapter 7 is the right tool when the debtor has limited income, little equity in major assets, and debts that genuinely cannot be repaid. It is the wrong tool when the debtor has significant non-exempt property they want to keep. 

The Chapter 7 Means Test 

The Chapter 7 means test decides whether the debtor qualifies for liquidation rather than being pushed into Chapter 13 repayment. It runs in two parts. 

Part One: Median Income Comparison 

Part one compares the debtor’s household income to the New York state median for the same household size. Filers below the median pass automatically and move forward with Chapter 7. 

The income figures are published by the Census Bureau and the Department of Justice. They are updated every six months. Counsel always pulls the current numbers before filing. 

Part Two: Disposable Income Analysis 

Filers above the median move to part two. The analysis allows standard expense deductions and asks whether the debtor has meaningful disposable income left over to fund a Chapter 13 plan. 

Many above-median filers still qualify for Chapter 7 after part two. The standard deductions are real, and they often consume the apparent income surplus. 

Choosing Between New York and Federal Exemptions 

New York is one of a minority of states that lets debtors choose between bankruptcy exemptions NY and the federal exemption system found in section 522(d) of the Bankruptcy Code. The choice is made once, and the two systems cannot be mixed. 

Picking the right set is one of the most consequential decisions in a Chapter 7 case. The right answer depends on home equity, vehicle equity, retirement accounts, cash on hand, and the type of personal property at risk. 

Homeowners with meaningful equity often do better under New York’s homestead exemption. Renters and debtors with low home equity often do better under the federal scheme, which offers a more generous wildcard. 

Key New York Exemptions 

Homestead Exemption 

New York’s homestead exemption protects equity in a primary residence. The amount varies by county, with downstate counties receiving the highest protection and upstate counties receiving less. 

Married couples filing jointly can generally double the homestead amount. The exemption applies only to a primary residence. Vacation homes, rentals, and investment properties do not qualify. 

Vehicle Exemption 

New York protects equity in one motor vehicle up to a set amount. Disabled debtors receive a higher amount for vehicles equipped or used for the disability. 

Personal Property and Cash 

New York exempts cash up to a statutory limit, plus household goods, clothing, and personal effects up to specified amounts. Wedding rings, school supplies, food, and certain pets receive their own protection. 

Tools of the Trade 

Tools, equipment, and certain professional libraries needed for the debtor’s trade or profession are protected up to a statutory amount. This protects workers who need their tools to keep earning income. 

Retirement Accounts 

401(k) plans, traditional pensions, IRAs, and similar retirement accounts are generally fully exempt under both New York and federal rules. The protection is among the strongest in bankruptcy law. 

The 730-Day Residency Requirement 

Federal law tracks where the debtor lived during the two years before filing. The 730-day rule decides which state’s exemptions a filer may use. 

Filers who have lived in New York for the full 730 days before filing can use New York exemptions. Filers who moved recently may be required to use the exemptions of their prior state, even if New York would be more favorable. 

The Federal Homestead Cap for Recent Home Purchases 

Federal law caps homestead protection for home equity acquired within 1,215 days, or roughly 40 months, before filing. The cap also applies in certain fraud-related situations. 

Filers who recently bought a home with substantial equity should plan carefully. Counsel reviews the closing timeline and the source of the equity well before filing to avoid surprises. 

Debts That Chapter 7 Wipes Out 

• Credit card balances and personal loans. 

• Medical bills, including older debts in collection. 

• Past-due utility bills and rent arrears in many cases. 

• Repossession and foreclosure deficiency balances. 

• Most civil lawsuit judgments, with exceptions for fraud and intentional harm. 

• Older income tax debts that meet specific timing and filing requirements. 

Debts Chapter 7 Generally Does Not Discharge 

• Most student loans, subject to a narrow undue hardship exception. 

• Recent income tax debts within the lookback period. 

• Child support and alimony obligations. 

• Criminal fines, court restitution, and certain DUI-related judgments. 

• Debts incurred through fraud or false financial statements. 

• Homeowners association dues that come due after filing. 

How the Chapter 7 Process Works 

Step 1 — Credit Counseling 

Federal law requires the debtor to complete a credit counseling course from an approved provider within the 180 days before filing. The course is short and can usually be completed online or by phone. 

Step 2 — Filing the Petition 

The petition, schedules, and supporting documents are filed with the bankruptcy court. The filing immediately triggers the automatic stay, which stops most collection activity, lawsuits, and wage garnishments. 

Step 3 — The 341 Meeting of Creditors 

A trustee conducts a short meeting with the debtor, usually within about 40 days of filing. The trustee asks questions about the schedules and the listed property. Most consumer meetings last 10 to 15 minutes. 

Step 4 — Trustee Review and Asset Determination 

The trustee reviews the debtor’s exemptions and decides whether any non-exempt assets exist worth selling. Most consumer Chapter 7 cases are designated no-asset cases, and nothing is sold. 

Step 5 — Discharge 

Assuming no objections, the discharge order typically issues about 60 to 90 days after the 341 meeting. The discharge ends personal liability for the qualifying debts. The case then closes. 

What to Do Before Filing 

• Gather two years of tax returns, recent pay stubs, and account statements. 

• List every creditor, including those whose addresses you do not have on hand. 

• Avoid large purchases, balance transfers, and credit card use in the months before filing. 

• Do not pay back money to family members or favored creditors before filing. 

• Do not transfer property or remove names from titles. 

• Complete the required credit counseling course on time. 

Each of these steps protects the discharge. Pre-filing mistakes can be undone by a trustee or even bar the discharge entirely. A pre-filing consultation prevents most of them. 

Why You Need a Liquidation Bankruptcy Attorney 

Chapter 7 looks simple on paper. Many filings come apart in the details — wrong exemption choice, missed deadlines, inaccurate schedules, undisclosed transfers. A liquidation bankruptcy attorney keeps the case clean. 

Counsel runs the means test correctly, picks the right exemption set, and prepares schedules that survive trustee scrutiny. They prepare the debtor for the 341 meeting so it does not become a stress test. 

Experienced counsel also flags the cases where Chapter 13 is actually the better tool, even when Chapter 7 looks tempting. Choosing the right chapter from day one saves real money and protects the debtor’s most important assets. 

Free Consultation 

Bankruptcy is one of the most consequential financial decisions a person can make. A careful look at the facts up front is the cheapest insurance against an avoidable mistake. 

Book a free consultation with our team at Gehi and Associates. We will review your debts, your assets, your income, and your goals. We will tell you honestly whether Chapter 7 fits or whether another path makes more sense. 

Get in touch with us today! 

Frequently Asked Questions: 

Will I lose my house in Chapter 7 bankruptcy New York? 

Not in most cases. The New York homestead exemption protects significant home equity, with downstate counties getting the highest protection. As long as your equity is within the applicable exemption, you keep the home in Chapter 7. 

Will I lose my car? 

Most filers keep their car. The vehicle exemption covers equity up to a statutory amount. If equity exceeds the exemption, options exist to buy out the excess or to reaffirm the loan and continue paying the lender. 

How long does the Chapter 7 means test take? 

Running the test itself takes well under an hour with current pay stubs and bank statements. The complexity is not the math, but the strategic decisions about timing, income reporting, and expense deductions. 

Can I keep my retirement accounts? 

Yes, in most cases. 401(k) plans, IRAs, traditional pensions, and similar retirement accounts are generally fully exempt under both New York and federal exemption systems. The protection is exceptionally strong. 

Should I use the bankruptcy exemptions NY system or the federal exemptions? 

It depends on your assets. Homeowners with meaningful equity usually do better under New York. Renters and debtors with low home equity often do better under federal, which has a more generous wildcard exemption. 

How long does a Chapter 7 case take from filing to discharge? 

Most consumer Chapter 7 cases close within 90 to 120 days from filing. Complex cases involving asset disputes, objections to discharge, or non-dischargeability litigation can take longer. 

Will Chapter 7 stop a wage garnishment? 

Yes, in nearly all consumer cases. The automatic stay takes effect the moment the petition is filed and halts most wage garnishments, collection lawsuits, and bank levies. Child support garnishments are a notable exception. 

Can I file Chapter 7 if I have already filed in the past? 

Yes, but timing rules apply. You generally cannot receive a Chapter 7 discharge within eight years of a prior Chapter 7 discharge. Other combinations have their own waiting periods, and a lawyer can run the math. 

Will Chapter 7 wipe out my student loans? 

Not in most cases. Student loans are dischargeable only under a strict undue hardship standard. Recent court decisions have made the standard somewhat more accessible, but it remains a high bar in practice. 

How much does a liquidation bankruptcy attorney typically charge? 

Consumer Chapter 7 fees vary by case complexity. Most offices quote a flat fee that covers the filing, the 341 meeting, and routine post-filing work. Court filing fees are separate. The initial consultation is free at most firms.