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

Outgoing Gov. David Paterson signed a bill into law that will have a significant effect on individuals filing personal bankruptcy in New York state.

Under the current laws, strict limitations were in place on the value of goods a person could keep when filing Ch. 7 or 13 bankruptcy. Though there was an increase in the homestead allowance from $10,000 to $50,000 in 2005 (adjusted in higher cost-of-living areas in the state), the remaining exemptions have not been increased since 1976.

Local bankruptcy attorney Jeffrey Freedman said that has caused undo hardship on people filing for bankruptcy protection.

"The purpose of bankruptcy is not to impoverish debtors and make them dependent on state assistance," he said. "Cars, for example, cost more and have a higher book value than they did 34 years ago."

To that point, the new law implements increases across the board and builds in a cost-of-living adjustment for the future. Freedman said that is a key component of the new law.

"Current levels of exemptions in New York state have been eroded by inflation to the point of being almost meaningless," he said. "This bill brings reality into the process of filing bankruptcy and gives debtors a legitimate chance to start over."

Among the key increases to the current exemptions (the value of goods one is allowed to retain after their bankruptcy is discharged) are:

• Automobiles: increased from $2,400 to $4,000

• Tools used in a trade: increased from $600 to $3,000

• Homes in Western New York: increased from $50,000 to $75,000 (higher exemptions in higher cost-of-living areas)

• Books and religious texts: increased from $50 to $500

• Domestic animals: increased from $450 to $1,000

• One watch: increased from $35 to $1,000

• One "wildcard" on personal property (if no homestead exemption is claimed): increased from zero to $1,000.

Advocates for the changes in exemption value have long pointed out that the cash levels were well below reality. For example, a plumber or electrician filing bankruptcy would only be allowed to keep $600 in tools, effectively rendering him unable to continue to work and earn a living.

"Obviously, these people can't be expected to continue to work without their tools," Freedman said. "For a mechanic or carpenter, even $3,000 for tools is low, but at least it's a step in the right direction."