Chapter 7 Bankruptcy in New Jersey
Whether they live in New Jersey, New York or California, when most people think of personal bankruptcy, they are usually thinking of chapter 7 bankruptcy. Often referred to as “straight bankruptcy” Chapter 7 allows debtors to quickly discharge unsecured debts, such as credit cards and medical bills, while retaining their exempt assets. Although many have the mistaken impression that they will lose all of their property if they file for bankruptcy, the opposite is usually true. Most consumers are able to protect the majority of their assets through the bankruptcy process. Only nonexempt assets are subject to sale by the bankruptcy trustee.
The Chapter 7 Process Varies Based on Location
Since the bankruptcy code is federal law, there are many similarities in the chapter 7 process regardless of where a case is filed. Having said that, there are important differences based on state law and local rules that make it important for consumers considering bankruptcy to understand how their case will be affected by the venue that they choose. New Jersey, like most states, has enacted exemption laws which apply to debtors filing bankruptcy and which allow them to shield some of their property from the bankruptcy trustee. However, unlike states like Texas who have generous exemption laws, New Jersey bankruptcy laws are more conservative in the amount of property they allow debtors to protect. For this reason, many consumers filing for bankruptcy New Jersey utilize the federal exemptions rather than the New Jersey state exemptions.
In New Jersey, Utilizing Federal Exemptions Provides Greater Protection For Your Property
Perhaps the number one reason that New Jersey debtors choose to utilize the federal bankruptcy exemptions over the New Jersey exemptions is the extra protection it affords their homestead. In order to protect a home with equity through the bankruptcy process, debtors must have a homestead exemption available. Homestead exemptions protect your primary residence from judgment creditors as well as the bankruptcy trustee. Homestead exemptions apply inside and outside of bankruptcy. Outside of bankruptcy, they prevent a judgment creditor from selling your home in satisfaction debt. In bankruptcy, homestead exemptions prevent the bankruptcy trustee from selling your home to pay back something to your creditors. The protection of homestead exemptions are not absolute, they vary by dollar amount based on the state you live in.
New Jersey Does Not Have a Homestead Exemption
In the bankruptcy context, New Jersey is one of a handful of states that does not have a homestead exemption. If a New Jerseyan with even a modest amount of home equity files for chapter 7, the home will be considered nonexempt and subject to sale by the bankruptcy trustee. For this reason, New Jersey debtors often opt for the federal exemptions which provide for a homestead exemption of $21,625 or $43,250 if a married couple files a joint case. Using the federal exemptions allows the family home to be protected from the trustee.
Exempting Personal Property
In a similar vein to the nonexistent homestead exemption, New Jersey bankruptcy laws give only modest protection to personal property. For example, New Jersey law only allows debtors to protect $1000 of value in furniture and household goods and gives another $1000 to protect personal property of any kind, including automobiles. By contrast, the federal exemptions provide $1450 of exemption value for jewelry alone and allow debtors to protect $3450 of equity in a car. Further, federal exemptions allow debtors to claim $10,825 of an unclaimed homestead exemption to protect any item of property that they own. This option works well for homeowners who have no need for a homestead exemption because they are underwater on their home’s value. Rather than use a homestead exemption they have no need for, they can roll over some of the homestead protection to exempt personal assets, such as cars, furniture and jewelry. When the discrepancy in exemption values is analyzed, there are very few reasons for debtors in New Jersey to utilize their state exemption laws. For a complete updated discussion of New Jersey versus federal exemptions, visit www.legal consumer.com
How Much Will Chapter 7 Cost in New Jersey?
According to New Jersey real estate attorney Andrew Roth, the average cost to file Chapter 7 bankruptcy in New Jersey is about $1500 for the attorneys fees and an additional $300 if the filing is a joint case. Add to that the filing fee which is $306 as well as the cost of a credit counseling and personal financial management course, both of which are required in order to receive your discharge. The credit counseling and financial management courses can add an aditional $100 to the cost of your chapter 7. The cost of bankruptcy varies greatly by jurisdiction and firm. As attorney Lori Patton points out in this post, it is not always wise to shop for the cheapest attorney:
An experienced, skilled bankruptcy attorney can guide you in the right direction and give you the individual attention you deserve. A cheaper fee might not mean as much attention or care at a time you need it most. If you are seriously considering bankruptcy, take the time to find an attorney experienced in bankruptcy. The experienced bankruptcy attorney’s fees may be a hundred or so higher than the other guys, but… you know it’s coming… You get what you pay for.
Will I qualify?
Bankruptcy reform legislation was passed in 2005 with the aim of making it more difficult for consumers to file for Chapter 7 bankruptcy. In order to qualify for Chapter 7, you must demonstrate that you don’t have enough income to pay something back to your creditors. If your median income over the last 6 months is below the New Jersey average, you are presumed to qualify. If however, your income exceeds the New jersey median for a family of your size over the last 6 months, your income and expenses will be subject to the means test. Currently, the New Jersey median income for a single earner in New Jersey is $60,322. If your income is below this number, you qualify automatically for chapter 7. If you earn more than this, the means test comes into play. At its most basic, the means test is a formula that analyzes your disposable income to see whether you can afford to pay something back your creditors in chapter 13 bankruptcy. If your disposable income after expenses is too high, a “presumption of abuse” arises and there is a rebuttable presumption that you can fund a chapter 13 plan. To view updated statistics on median incomes in New Jersey take a look at this chart supplied by the Census Bureau.