When claiming exemptions, a debtor in New Jersey who files for bankruptcy may adhere to either the New Jersey statute or the federal statute.
The following list includes some of the most significant exemptions that a debtor filing for bankruptcy in New Jersey might be eligible for, along with a brief explanation of each exemption.
A lawyer should be consulted to ascertain the specifics of each exception and determine whether it is preferable to obey the federal laws or the New Jersey statute.
In New Jersey, federal exemptions may be submitted instead of the state’s exemption law.
The federal government will exempt up to $22,975 of your interest in your home, burial plot, or car and up to $3,675 of your interest in a car. As long as each individual item is worth less than $575, your interest in certain home goods, up to a total value of $12,250, is excluded.
These items are “kept principally for the personal, family, or domestic use of the debtor or a dependent of the debtor,” and they include “household furnishings, household goods, wearing garments, appliances, books, animals, crops, or musical instruments.”
Up to $1,550 in jewelry can be claimed for your own use.
A “wildcard” exemption of up to $1,225 is allowable. You may utilize up to $11,500 of the portion of your exemption that isn’t used for “wildcard” property if you don’t use your entire exemption for your home.
Up to $2,300 worth of “tools of the trade” that you use on the job are exempt from taxation.
Except for credit life insurance contracts, all of your life insurance policies are excluded from federal regulations.
As much alimony as you genuinely need for support is also exempt, along with any Social Security benefits, unemployment benefits, municipal public assistance payments, veteran’s benefits, disability benefits, and illness benefits.
If you were the victim of a crime or received compensation for someone else’s unfortunate death who was reliant on you, you may be able to waive your right to receive your award.
If the payment is required for your support, you may also be excused from a life insurance contract for a person dependent on you. Id. Federal exemptions may be doubled if you and your spouse file for bankruptcy jointly. Any property you want to use the doubling exemption on must be jointly owned.
If you file for Chapter 7 bankruptcy, you lose any non-exempt property. The bankruptcy trustee overseeing your case will sell the property for the benefit of your creditors. All of your possessions are yours to keep if you file for Chapter 13 bankruptcy, but this luxury has a monetary cost. Any property not covered by an exemption under your Chapter 13 repayment plan will be valued and paid to your creditors.
Consider the scenario when you own a $3,000 car outright and a $5,000 vehicle exemption in your state. What would occur in each chapter is as follows.
You will be able to keep your car if you file for Chapter 7 bankruptcy because the exemption will fully preserve the equity. The bankruptcy trustee would sell your car, pay you $5,000 for the exemption, and then divide the remaining $15,000 among your unsecured creditors in the same case. Your car’s value in this example was $15,000.
You wouldn’t have to make additional payments to your creditors under Chapter 13’s repayment arrangement. However, if the car were worth $15,000, you would have to use your plan to pay your creditors at least $10,000.
Remember that a car loan is not included in these examples. More details are provided below.
Many people are curious whether they can keep their home or car while paying off their mortgage or loan in full. The short response is “No.” There are further steps to follow, but protecting the equity with an exemption will prevent the Chapter 7 trustee from selling it and won’t cost you more to maintain it in Chapter 13.
The mortgage or auto payment must first be current in a Chapter 7 case. Second, you must be able to make the payment moving forward. Why? Because you granted the lender a “lien” on the property when you bought it.
Due to the lien, the lender has a secured debt that entitles them to repossess the property even if they declare bankruptcy. So, if you’re late on a payment and file for Chapter 7, the property will be forfeited. Instead, think about filing for Chapter 13 to pay off arrearages.
When declaring bankruptcy, relocating to a state with much broader bankruptcy exemptions may be tempting. But that’s not how it operates. Filers must have lived in the state for at least two years before filing; if not, they must use the exemptions from their prior state. This requirement is in place to avoid system abuse.
You can take advantage of the state’s exemptions if you’ve lived permanently (or “domiciled”) in your present state for at least two years (or the federal exemptions if allowed).
You will select the state where you spent the majority of the 180 days immediately preceding the two years prior to filing.
Take a look back 2.5 years. Then, consider where you spent most of the first six months of that 2.5-year span.
Let’s say your filing deadline was January 1, 2022. You would be eligible to use the exemptions of whichever state you resided in the most from July 1, 2019, through December 31, 2019, during your two-and-a-half-year term, which would begin on July 1, 2019. You could exploit that state’s exemptions without filing your case there. I hope that was helpful.
Even though the property would have been exempt had the exemption been submitted correctly, bankruptcy is a very complicated process. Submitting an exemption wrongly might result in the property being confiscated. When filing exemptions, New Jersey permits the use of either the state legislation or the federal statute, each of which protects various assets from creditors.
A New Jersey bankruptcy attorney is knowledgeable about the process of declaring bankruptcy, can advise you on the best bankruptcy chapter and can make sure that your exemptions are properly filed.
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