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Friday, June 25, 2021

What Property Is Exempt in Chapter 7 Bankruptcy?

Have you found yourself in an unsustainable financial situation? Are the debts piling up and you are struggling to make your minimum payments? It may be well past time for you to consider filing Chapter 7 bankruptcy. Known as “liquidation” bankruptcy, Chapter 7 will discharge most, if not all, of your debt. Chapter 7 is particularly helpful for those struggling with credit card debt and outstanding medical bills. While the elimination of much or all of your debt may sound incredibly appealing, many are reluctant to file Chapter 7 because they think it means they will lose all of their property. This is not the case. There are exemptions in place to use on qualifying property. We will discuss those exemptions in more detail here.

What Property is Exempt in Chapter 7 Bankruptcy?

Chapter 7 bankruptcy is also referred to as “liquidation bankruptcy,” because assets not covered by an exemption may be sold off, or “liquidated,” and the proceeds used to pay off outstanding creditor obligations. Most commonly, however, Chapter 7 filers do not end up losing any property, or a minimal amount, as the exemptions provide more than enough coverage to protect property from sale. Every state has its own set of bankruptcy exemptions and New Jersey is no exception. If you file Chapter 7 bankruptcy in New Jersey, you will have the option of choosing between the New Jersey state bankruptcy exemptions, with certain supplemental federal exemptions, and the federal exemptions.

Which set of exemptions you select is an important choice and it is critical to review both sets of exemptions to see which is the best fit for your individual circumstances. You cannot pick and choose from both exemption sets. Instead, you must pick one or the other. When reviewing the exemption sets, please be aware that the exemption limits refer specifically to your equity in property, not the value of the property. For instance, your house may be worth $250,000, but you still owe $225,000 on it. This means that you have $25,000 in equity that may be protected in bankruptcy under an exemption.

Some of the more notable federal bankruptcy exemptions include a homestead exemption of up to $25,150 in real property. Married couples filing jointly are eligible to have this exemption doubled. There is also the wildcard exemption which can be used to protect $1,325 of any property type. The $1,325 can be combined with any unused portion of the homestead exemption up to $12,575. Additionally, certain insurance benefits and proceeds are also exempt under the federal exemptions.

The New Jersey bankruptcy exemptions, on the other hand, do not allow for exempting any portion of the value of your home nor do they provide an exemption for tools of the trade or a motor vehicle. There is an unlimited amount of clothing protection, however, and you are able to exempt up to $1,000 in personal property and up to $1,000 in furniture and household goods. Married couples filing jointly can double the personal property exemption to up to $2,000. New Jersey also provides a wildcard exemption for up to $1,000 in general personal property as well as exemption protection for certain insurance benefits and proceeds, among other things.

New Jersey Bankruptcy Attorneys

Sometimes, bankruptcy misconceptions such as “if you file bankruptcy, you will lose all of your property,” can prevent those who would benefit from bankruptcy from actually looking into it. Get your information from a trusted source. The knowledgeable team at Cassidy Law Firm is here to answer your questions and provide you with trusted legal counsel. Contact us today.

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