More on LI filing Chapter 7 bankruptcies

More people, companies and partnerships filed for Chapter 7 bankruptcy protection in the Federal Courthouse in Central Islip in March than have in at least two years, according to U.S. Bankruptcy Court Eastern District statistics.

A change in state law that took effect in late January increased the dollar amount of exemption filers can take, making Chapter 7 bankruptcy -- which usually ends in a company's liquidation -- a more attractive option than it was before.

Chapter 7 filings climbed to 907 from 833 in March 2010.

"The uptick is because of the change of the law," said attorney Eric Stern, who was at the courthouse representing a client in a Chapter 7 case. "A lot of clients who couldn't file before, now can."

Stern said he had a client with a $350,000 house and a $200,000 mortgage. The new state homestead exemption -- the amount of home equity protected from liquidation -- was raised to $150,000 per individual from $50,000.

"The exemption allows him to get rid of his other debts and keep the mortgage," he said. "If he keeps making mortgage payments, he'll keep the house."

Overall bankruptcies, including chapters 7, 11, and 13, fell in March compared to a year earlier - 984 versus 1,040. Though Chapter 7 and Chapter 13 filings have tended to surge and ebb in tandem, in March Chapter 13 filings fell to 65 compared to 187 a year earlier.

Another change in the law allows filers to choose between federal and state exemptions, which each have different advantages for different filers.

"Now they have options," said bankruptcy attorney Katherine Geraci. Under the old law, a debtor could keep $2,400 of equity in a car; now a person can opt to use a federal "wild-card" exemption that protects roughly $10,800 of personal property, which would protect a more expensive car from being taken by the trustee in a liquidation case.

Nationally, all bankruptcy filings fell 6 percent to 340,012 in the first quarter of 2011 compared to the same period a year earlier, according to the American Bankruptcy Institute.

Bankruptcy institute resident scholar Jean Braucher was skeptical that New York's law change was a factor in the boost in Chapter 7 filings.

"Nationally, when you look at exemptions, they do not seem to be driving choice of chapter [filings]," she said.