Southampton - As a result of a combination of factors, among them declining incomes, increased cost of living, and consumer debt, many people have found themselves in economically perilous conditions. At the same time, because of the decline in property values, the worst since the Great Depression, further borrowing against the equity in one's home - whether it be to pay medical bills, finance a college education, help keep pace with the cost of living, or enjoy a life-style otherwise unaffordable, this is no longer, for most people, a viable alternative.

Many who are in these circumstances have resorted to protection from creditors by filing personal bankruptcy.

Alan C. Stein. (Courtesy Photo: Stein)

A recent article published in the New York Times refers to a report from Epiq Systems, which tracks bankruptcy filings. According to the report, so far this year, the number of bankruptcy cases in New York dropped by five percent. It further states that nearly 70 percent were Chapter 7 filings (debts of qualified filers may be totally forgiven); slightly more than 27 percent were Chapter 13 filings (filers pay a portion of their debts through a three or five-year payment plan). The remainder was mostly commercial filings.

To find out how these statistics compared to Long Island, the East End in particular, I spoke with Alan C. Stein, an attorney with offices in Plainview and Southampton, who focuses his practice on bankruptcy, commercial litigation, foreclosures, and matrimonial law. Alan is also an ordained rabbi, Temple Shalom in Woodbury, Long Island.

Alan, statistically, how do the cases you file measure up against the statistics included in the referred to report?

His response "I would say that the cases I file in Nassau-Suffolk break down 60 percent
Chapter 7, and 40 percent Chapter 13, except that the figures for the Hamptons and North Fork are closer to 70 percent - 28 percent for New York State as a whole."

How do you explain the difference of the East End statistics as compared to other areas on Long Island, Alan?

"The primary reason is that median incomes in western Suffolk and Nassau Counties are higher than they are on the East End, including the Hamptons. Those people have fewer assets and are more likely to qualify for a complete forgiveness of debt under Chapter 7.

Many are renters earning incomes of $30,000 to $50,000 a year. Those in the higher income areas are more likely to have the assets necessary to enter into a payment plan Under Chapter 13."

Alan continued, "Many of the homes in the Hamptons are valued well over a million dollars, and may carry mortgages, even if $1.050 million which exceeds the threshold for secured debt under Chapter 13."

What about second mortgages, Alan, I asked.

"It is possible that up to 95 percent of a second mortgage can be discharged."

Alan, you are involved in "short sales" as well as bankruptcy. What should someone who is going to be involved in a "short sale" and considering filing for bankruptcy know?

"Hire a bankruptcy lawyer before you sell the house. If a non-primary residence, as defined in the Federal Tax Code is the subject of a 'short-sale,' the bank will issue a 1099 for the amount of the debt not satisfied. It will be considered taxable income to the seller. File bankruptcy before selling the house. On a primary residence, under the Debt Relief Act, forgiveness of debt is not a taxable event. If you sell first, you will have to pay the debts from the proceeds of the sale."

Alan, on December 23, 2010, then-Governor David Paterson signed a law which became effective January 22, 2011. What can you tell me about that law?

"That was a great Christmas present that the governor gave to the people of New York. Most significantly it increased the homestead exemption, (primary residence), in some communities throughout the state, including Nassau and Suffolk Counties, from $50,000 to $150,000. Since a husband and wife can pool their homestead exemption that means that a married couple will be able to protect up to $300,000 worth of equity in their home."

What is the single largest debt that most filers have to discharge, Alan?

"Second mortgages," was his answer. "Also, I want to make the point, that bankruptcy may also help to discharge tax liens and judgments."

What do you predict as far as the number of bankruptcy filings going forward, Alan?

"The peak for filing was between 2008 and 2010. I would expect that with the liberalization of the bankruptcy laws, we will see an increase in the percentage of filings."

Thank you, Alan.

Editor's Note: John will be teaching a 22.5 hours Real Estate Continuing Education class at Long Island University in Riverhead on August 15, August 17, and August 19. For information and registration contact Rosemary Malone at 631-287-8334 or by email at rosemary.malone@liu.edu.