Legal Question in Bankruptcy in New York

Madoff / Clawback / Homestead Questions

If I was an investor in one of Madoffs funds and throughout the years have used the gains from it to buy my primary residence and I have received more than my initial investment back, is my house protected under New York State Homestead laws that are usually applied during bankruptcy cases, etc? So basically if I invested $1M initially, then used $2M in gains to purchase my residence for $2M, will my house be attacked and I will be force to sell it to return my $1M in gains if I do not have $1M in equity. Thanks.


Asked on 1/25/09, 11:37 am

3 Answers from Attorneys

Stephen Starr Starr & Starr, PLLC

Re: Madoff / Clawback / Homestead Questions - Ponzi Scheme

Madoff has publicly admitted that he operated a Ponzi or pyramid scheme -- whereby money from new investors was used to pay old investors. In a bankruptcy resulting from a Ponzi scheme the bankruptcy trustee has broad powers to set aside fraudulent transfers.

In NY a homestead exemption is limited to $50,000 equity in a residence for a single person and $100,000 for a married couple. In addition, the fact that a recipient of funds/defendant to a fraudulent transfer lawsuit used the money that he/she received to invest in an asset that may be exempt from judgment enforcement (i.e., such as a homestead) would not eliminate a trustee's ability to trace and recover the funds. However, there are certain defenses that a recipient of an alleged fraudulent transfer may be able to raise to the trustee�s claim.

The foregoing is intended as general information of interest to readers of this website and is not intended as legal advice for your situation. Facts not disclosed in your posting may materially affect your rights and remedies. You should consult with an attorney.

My firm has been active in providing advice to individuals and companies, and their counsel and advisors, regarding their rights and remedies vis-a-vis the Madoff situation.

Please feel free to contact me at 8888678165 to schedule a consultation.

Best regards,

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Answered on 1/25/09, 12:31 pm
jeffrey lazroe Jeffrey A. Lazroe attorney at law

Re: Madoff / Clawback / Homestead Questions

This is not an easy question to answer. A lot depends upon the timing. Over what period of time did Madoff give you the money. When was the money first invested? When was the last time that Madoff gave you a check and for what amount.?

I don't think that you wanted to go into bankruptcy - just to protect your initial investment and the monies that you received from the investment.

I do think that you are in pretty good shape. Please contact this office with more details. You should start planning now before it gets any worse.

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Answered on 1/25/09, 4:28 pm
Craig Robins Law Offices of Craig D. Robins (www.BankruptcyCanHelp.com)

Re: Madoff / Clawback / Homestead Questions

You can only protect $50,000 of equity per person when using the homestead exemption in the state of New York. In your question, it was unclear how much equity you have.

However, if you have a $2,000,000 home, chances are that you probably have other significant assets that would not make a Chapter 7 filing your best option for dealing with this.

If you feel that a significant claim could be made against you, I urge you to meet with a bankruptcy attorney soon to discuss the situation further and to explore your legal rights.

For an article discussing New York's homestead exemption in bankruptcy cases, please see this link:

http://www.bankruptcycanhelp.com/published-articles/2005-09-S-Homestead-Exemption.php

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Answered on 1/25/09, 7:04 pm


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