By MATT CHANDLER
mchandler@bizjournals.com | 716-541-1654

Ask a bankruptcy attorney about Chapter 7 filings and most will tell you the purpose is to offer their clients a clean slate, a fresh start to recover from a catastrophic life experience.

Whether precipitated by the loss of a job, an unforeseen medical emergency or the death of a spouse, there were 54,124 non-business bankruptcy filings in New York state last year. And for many people, filing came with a host of obstacles impeding their attempts at a "fresh start." Thanks to an antiquated set of exemptions - guidelines of how much property and cash the debtor can retain after filing - many people face undue hardships and tough choices when it comes time to file.

That may soon change if a bill currently awaiting a vote on the floor of the New York State Senate passes. Among other things, the bill will raise the exemption level for several key areas - including automobiles, which would be set at $4,000, or $10,000 for vehicles equipped for disabled people. Locally, anticipation is high for passage of the legislation.

Paul Pochepan is a senior attorney with the Law Offices of Jeffrey Freedman. He says many of his clients had to make difficult choices due in part to the outdated exemption figures. He cites the $2,400 equity allowance for an automobile as an example of the government wanting individuals to remain self-sufficient, but leaving them in a position where upon filing, they may not have a car to get to and from work.

"It has been 34 years since that exemption has changed," Pochepan says. "The residual value of a car is so much greater now, you could be driving around what could be classified as a junker and it would be worth more than $2,400."

The car exemption is a common stumbling block for his clients, he says, especially older people who have had a car for a long time that has retained some value beyond the exemption.

"We'd like to see it go higher, but the $4,000 is a good start," he says.

Pochepan anticipates that with passage of the law, the $4,000 exemption will increase, thanks to a built-in cost-of-living adjustment that is part of the package.

"A lot of other states have had a COLA in place," he says, "If that goes into effect, we should see the numbers start to come in line with reality."

The one area in the law that has seen recent movement is the homestead exemption - the marker of how much equity can exist in a home of someone filing for Chapter 7 protection. As recently as 2005, that number stood at $10,000 (per person for married couples). For the growing number of older residents, many of whom lost a spouse and are living in a home they paid off, the equity exemption could cause them to lose their home. After being increased to $50,000 several years ago, the current legislation would bump that number to $75,000 in Erie County, with step increases in areas with higher costs of living.

Terrie Benson Murray, an attorney with Cohen Lombardo PC, said she sees this as a critical component of the current bill.

"For younger homeowners, they may not have that much equity in their home," she says. "But with those older individuals, who have worked to pay off the house, it can be a real problem."

Benson Murray says one option for her clients is to take out a home equity loan on the property, thus eliminating the true equity in the house. The challenge, she says, is that the people who need such a loan may be unable to get one.

"Many of these individuals are retired, and without a good stream of income, they don't have the ability to take out that line of equity against the house," she says. "It becomes a catch-22 where they can't get the loan, but they have all of this equity and if they file bankruptcy they are going to lose their home. I think allowing a husband and wife to keep up to $150,000 in equity in a home is huge,"

The other key exemption involves so-called "tools of the trade." Under the current law, a plumber, electrician or contractor is allowed a $600 exemption for tools needed to perform their job.

"This is one that has really hurt," Pochepan says. "Especially for the smaller, self-employed people, it takes nothing to accumulate $600 in tools."

In a case where a craftsman needs to keep his tools, but the value is set at, say, $2,600, the debtor must come up with the difference - in this case, $2,000 - and pay the court to retain the assets, he says.

"It's never an option for them to lose the tools of their livelihood, so in these cases it pushes us in one of two directions," Pochepan says. "Either that person, who is already in a bad financial situation, has to come up with the cash or we have to look at putting them in Chapter 13 bankruptcy, which can cause additional hardships."

Both he and Benson Murray see the pending legislative changes as long overdue and a step in the right direction for those individuals faced with filing bankruptcy. Asked why it has taken so long - it has been 34 years since many of the exemptions were updated - Murray wonders if it has something to do with the economic collapse that drew more middle-class New Yorkers into the bankruptcy mix.

"I suspect that the economy hadn't been bad enough and now they have numbers of who this is impacting," she says. "Before, it was real easy to say, ‘Oh well, these people were deadbeats who ran up their credit cards and don't want to pay their bills.' Now there are a lot of ordinary people out their who are in really bad shape."