New Jersey is one of the wealthiest states in the U.S. However, all of that income comes at a price—New Jersey also has high property taxes and even higher rent prices. It is in the top five most expensive locations to purchase a home in the United States. The U.S. average credit card debt is $6,304.26, but it is $8,406.60 for those in New Jersey.
With the high costs of living and larger-than-average debt rate, it makes sense that several thousand people file bankruptcy in New Jersey every year. However, many people hesitate to file bankruptcy because they are concerned that they will lose everything they own as a result. Thankfully, this common misconception is not true—while there will be some changes regarding your property and finances, you may be able to keep some of your most important possessions by using New Jersey bankruptcy exemptions.
What Are New Jersey Bankruptcy Exemptions?
Bankruptcy laws are specifically designed to help struggling debtors. The bankruptcy code does not want to force debtors to start over with absolutely nothing. To prevent this type of problem, both federal and New Jersey laws allow debtors to keep some property. Debtors do this by claiming “exemptions.”
An exemption allows you to keep specific property or funds up to a certain amount. You may also be able to keep a portion of the funds if the property is sold as well. Exemptions are not automatic; you must explicitly set out which exemptions you want and claim them as part of your bankruptcy schedules. If you do not claim them correctly, then you will lose the opportunity and the property that would have been otherwise exempt.
Choosing the Right Exemptions
New Jersey bankruptcy filers have the option to choose between New Jersey and federal exemptions. Each set of exemptions has advantages and disadvantages that vary depending on your property and financial situation.
For example, New Jersey does not allow you to exempt any part of your home. The federal exemptions will enable you to exempt a portion of the equity in your home. New Jersey allows you to exempt the full value of your IRA. In contrast, federal law places a limitation on how much you can exempt for your IRA.
Types of New Jersey Bankruptcy Exemptions
The New Jersey-specific exemptions fall into several categories:
In New Jersey, you have a blanket exemption for personal property. That means that you can keep whatever personal property you would like as long as the value of the property stays below a specified amount. The New Jersey exemption is $1,000 for an individual and $2,000 for a married couple.
The federal personal property exemption, however, is much higher. It is $12,625, with a $600 maximum for each item. Federal law also permits you to exempt things like jewelry and health aids. New Jersey has no similar exemption for these specific items.
Unfortunately, New Jersey does not have a specific exemption for vehicles. However, you can use your personal property exemption to exempt at least a portion of your car. The federal exemption is $3,775.
Federal law permits debtors to exempt a portion of the equity in their home. It is up to $23,675 of real estate that you use as your personal residence. New Jersey has no similar exemption for homesteads.
New Jersey permits debtors to exempt the entire amount of most retirement funds. Debtors that have significant retirement accounts will often choose to use the New Jersey exemptions for this reason. Federal law has a cap on IRAs and Roth IRAs of $1.28 million.
Exemptions in Chapter 7
In Chapter 7, exemptions are perhaps more important because it protects certain assets from sale. Even if an exempt property is sold, you can recover the value of the equity of the property up to the amount of the exemption.
For example, imagine that you are in the process of purchasing a vehicle. You have $10,000 left in payments, but the car is worth $12,000. That means you have $2,000 of equity in the car. If you use the federal exemptions, you can claim that $2,000 in equity as exempt because it falls under the $3,775 top exemption amount. The vehicle may still be sold, but you will receive the first $2,000 from the proceeds of the sale to cover that exemption.
Exemptions in Chapter 13 Bankruptcy
In Chapter 13, exemptions will dictate how much you will have to pay your creditors as part of your repayment plan. In a New Jersey Chapter 13 bankruptcy, you develop a plan to pay your creditors over at least three years, and up to five years. You propose this repayment plan to the court, and the court must approve it. The plan must meet particular requirements under the bankruptcy code.
One of those requirements to have a plan includes ensuring that you are paying creditors at least as much as they would have gotten if you filed Chapter 7 bankruptcy. That is where your exemptions come into play. Because an exemption would decrease how much a creditor would receive in a Chapter 7 bankruptcy, it will affect how much you have to commit to repay as part of your Chapter 13 plan.
In Chapter 13, you will usually try to keep up with your payments on your secured property, such as your vehicle and your house. However, your unsecured debt is treated differently. You must commit to paying your unsecured creditors at least as much as they would have gotten in a Chapter 7. The trustee will not sell your assets in a Chapter 13 bankruptcy; instead, you must pay the portion of your property that is not exempt.
For example, imagine that your total unsecured debts are $20,000. You and your spouse own personal property that is worth $5,000. In a Chapter 7 bankruptcy, the trustee would sell your non-exempt personal assets, which is $3,000 worth of your property. You would be able to keep the other $2,000 worth of property using the New Jersey property exemption. That means that your creditors would only be able to get $3,000 from that personal property in a Chapter 7 bankruptcy. In a Chapter 13 bankruptcy, then, your payment plan must include at least a total of $3,000. Without the exemption, creditors would be able to get the full $5,000 as part of the repayment plan.
Your income will also dictate how much your creditors will ultimately receive. Nonetheless, your exemptions provide a valuable decrease in the overall amount that you must repay to creditors.
Getting Help with Your Exemptions
You must use your exemptions properly in bankruptcy, or you will lose them! Working with an experienced bankruptcy attorney can help you take full advantage of these valuable exemptions. Talk to our New Jersey bankruptcy attorneys to explore your options.
Whether you need to completely eliminate your debt through Chapter 7 bankruptcy, or need to reorganize your credit payments through Chapter 13 or Chapter 11, we are well qualified as a full-service bankruptcy law firm for people in these and other New Jersey counties: Passaic County, Hudson County, Essex County, Bergen County, Morris County, and Sussex County. Call us today at 973-870-0434 or toll free 888-412-5091.