New York bankruptcy laws are often thought to be just like the ones in other states – in fact, you probably think they’re found in the U.S. Bankruptcy Code. If only it were so easy.
In fact, the New York bankruptcy laws are scattered around the federal and state statutes. It’s one of the reasons why lawyers who practice bankruptcy law in other states often call a local bankruptcy lawyer when they have a question that relates back here.
It makes sense to think you should look first to the federal laws, and you’re right. The framework of the bankruptcy system is based in the federal scheme. But that’s pretty much where it ends.
For example, here are 2 places where the New York bankruptcy laws come from state, rather, than federal statutes:
Fraudulent Conveyances: The determination of whether a transfer of property is fraudulent comes from the Article 10 of the Debtor and Creditor Law, not the federal bankruptcy laws.
New York Bankruptcy Exemptions: What you get to keep in Chapter 7 or Chapter 13 comes not from federal law, but from a host of New York laws. In particular, NY Civil Practice Law and Rules Sections 5205 and 5206 govern our bankruptcy exemptions for personal property and real estate. Article 10 of the Debtor and Creditor Law also governs the exemption of personal property.
These two aspects of the bankruptcy law are very important when you’re dealing with a New York issue because the outcomes in bankruptcy can be radically different here than elsewhere.
For example, let’s say you own a home in Illinois yet you live here. You move to Illinois and try to file a case. Assuming that Illinois exemptions apply (they don’t unless you live there for a certain period of time) you may end up getting to keep certain property that you would have to give up if you lived here (such as your home) – or vice versa.
Some people have moved to another state merely to take advantage of more liberal exemption and fraudulent conveyance rules, and there’s nothing wrong with that it done properly. But don’t make the mistake of doing something like that without consulting with lawyers on both sides of the border or you may be in for a rude awakening when it comes time to file your case.