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Posted by: National Bankruptcy Forum
New Jersey is often described as one of the wealthiest states in the nation. In raw numbers, that’s true — New Jersey consistently posts median individual and household incomes well above the national median. Through 2018, New Jersey’s average household income was almost $80,000.
Unfortunately, a high cost of living offsets higher income, and the prolonged economic shutdown brought on by the coronavirus outbreak may take a toll on the New Jersey economy. New Jersey residents, on average, have the longest commutes in the nation. Property taxes are high. Rent on a two-bedroom apartment is nearly 43% higher than the national average, and Jersey is one of the most expensive places in the U.S. to buy a home.
With these high costs, it’s no surprise that New Jersey residents have more debt than most of the nation. The state ranks in the top 10 for student loan debt, with about 66% of graduates carrying debt. Average credit card debt is the second-highest in the U.S.
With so much financial pressure in play, it’s also no surprise that between October 1, 2016, and September 30, 2017, more than 16,000 New Jersey residents filed for Chapter 7 bankruptcy protection. Now that we face the prospect of a prolonged recession, these numbers may go up in 2020 and 2021.
What is Chapter 7 bankruptcy?
In simplest terms, Chapter 7 bankruptcy is a legal way for people who are overwhelmed by unsecured debt to wipe the slate clean and start over. For those who qualify, Chapter 7 bankruptcy can eliminate a wide variety of debt, including:
- Medical bills
- Credit card debt
- Payday loan debt
- Collection accounts
Chapter 7 bankruptcy can eliminate unsecured debt even if the debtor has already been sued and a judgment has already been entered. The order eliminating these debts is called a “discharge order,” and it prohibits creditors and collection agencies from ever trying to collect on discharged debts.
Some people considering Chapter 7 bankruptcy are fearful that they will lose their cars, homes, and other property if they seek the help they need. Fortunately, most people who file for Chapter 7 don’t lose any property at all. That’s because state and federal law create exemptions to protect certain property. New Jersey exemptions are described in greater detail below.
Filing for Chapter 7 Bankruptcy in New Jersey
To file your bankruptcy petition in New Jersey, a debtor must have resided in the state or had your principle place of business in the state for the larger part of the past 180 days. Someone who has recently moved to New Jersey may meet that requirement in as little as 91 days. However, it’s important to note that a new arrival — a debtor who moved to New Jersey within the previous two years — may be required to apply the exemptions of the prior state.
In addition to the residency requirement, a person or married couple filing for Chapter 7 bankruptcy must qualify financially. The first step in this analysis is to compare the debtor’s income to the applicable New Jersey median. If the debtor’s income is below the median, he or she can generally proceed with Chapter 7 bankruptcy.
If the debtor’s income is above the state median, the analysis becomes a bit more complicated. A “means test” is applied to determine whether the debtor can afford to make partial payment to his or her creditors. If a debtor does not qualify for Chapter 7 bankruptcy under the means test, he or she may be able to file for Chapter 13 bankruptcy instead.
New Jersey Bankruptcy Exemptions: What property can I keep?
New Jersey’s bankruptcy exemptions are somewhat sparse. However, New Jersey allows debtors to opt for federal exemptions in place of New Jersey exemptions, allowing debtors to protect property that is not exempt under New Jersey law.
New Jersey vs. Federal ExemptionsThe top 5 exemptions under New Jersey law compared to federal law.
|Type of exemption||New Jersey law||Federal law|
|Homestead||No state exemption||$23,675 of equity in principal place of residence|
|Personal property||$1,000 ($2,000 for a married couple)||$12,625 aggregate value on household goods, plus federal wildcard exemption applicable ($1,250 plus $11,850 of any unused portion of your homestead exemption)|
|Vehicle||No state exemption, but can apply personal property exemption||$3,775|
|Wages||75% of gross earnings; more if the debtor's income is below 250% of the poverty line||Income you've earned but not yet received becomes part of your bankruptcy estate|
|Pension/retirement||Blanket exemptions for certain government pensions||Exempt, with a cap of about $1.28 million on IRAs and Roth IRAs|
New Jersey state law does not provide a homestead exemption. However, a New Jersey resident opting for the federal exemptions may exempt up to $23,675 in equity in a home. For a married couple, the exemption is doubled, to $47,350. 11 U.S.C. § 522(b)(3)(8).
New Jersey does not provide a specific exemption for motor vehicles. A New Jersey resident applying state exemptions may apply any part of the $1,000 ($2,000 for a married couple) personal property exemption to a vehicle. Under federal exemptions, an individual may protect up to $3,775 in equity in an automobile, and that amount is doubled for a married couple.
Under New Jersey law, all clothing is exempt, as is any interest in a burial plot. The state offers a $1,000 personal property exemption ($2,000 for a married couple), which may be applied to any personal property, including a motor vehicle. The state offers an additional $1,000/$2,000 in protection for furniture and household goods.
The federal exemptions offer greater protection, but with more specificity. Animals, crops, clothing, appliances, furnishings, books, household goods, and musical instruments are protected up to an aggregate $12,625, but only up to a value of $600 per item. Jewelry is exempt up to an aggregate value of $1,600. N.J. Stat. Ann. § § 2A:17-19, 2A:26-4, 38A:4-8.
Under New Jersey law, creditors have access to 25% of gross earnings, unless the debtor’s income is below 250% of the poverty level. For debtors below that line, the limit is 10%.
Comparison to federal law is a bit complicated, since federal wage exemption laws speak in terms of disposable income, not gross income. Under federal law, the debtor is entitled to keep 75% of disposable income or 30 times the federal minimum wage — whichever is greater.
Pensions and Retirement Accounts
New Jersey law provides blanket exemptions for certain government pensions. Federal law, on the other hand, does not protect those pensions, but does provide extensive protection for tax-exempt retirement accounts such as a 401(k), 403(b), SEP, or SIMPLE IRA. Federal exemptions also protect up to $1,283,025 in an IRA or Roth IRA.
At first glance, it appears that federal exemptions are more beneficial, and for most New Jersey residents, that’s true. However, the best way to determine which exemptions to choose is to consult with an experienced bankruptcy attorney. The right choice depends on the assets a debtor is seeking to protect.
New Jersey Bankruptcy Court Locations
Should you choose to file bankruptcy in New Jersey, you’ll need to know where the bankruptcy courts are. The U.S. Bankruptcy Court, District of New Jersey, has three locations:
A New Jersey bankruptcy attorney can help you determine whether Chapter 7 bankruptcy is right for you, assess your eligibility, help you choose the right exemptions for your circumstances, and ensure that your rights are protected as you pursue financial freedom. Get the information you need today to make the best decisions for your future.