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All About Exemptions: An Exploration of Which Assets I Can Keep If I File a NJ Chapter 7 Bankruptcy

by | Apr 21, 2022 | Bankruptcy Basics, Chapter 7 Bankruptcy

Most People Keep All of their Property After  a Chapter 7 Bankruptcy

A person who files bankruptcy, known as a debtor, is allowed to keep a certain amount of property in order to get a fresh start after bankruptcy. The property a debtor is allowed to keep is called exempt property.

Most Chapter 7 bankruptcy cases are considered no asset cases. That means that the debtor gets to keep all of their assets. Bankruptcy exemptions are an important part of the bankruptcy system. In a Chapter 7 bankruptcy, exemptions determine what property you get to keep. If the property is exempt, you can keep it during and after bankruptcy. At Levitt and Slafkes, P.C. we will give you all the time you need to make sure that you understand how bankruptcy can help you.

When a bankruptcy is filed in New Jersey you can use either the NJ state exemptions or the Federal exemptions. We generally use the Federal Bankruptcy exemptions to help our clients keep their assets as the NJ exemptions are very limited.

Property Protected with Federal Bankruptcy Exemptions

Here are some of the assets that Federal law allows each debtor to keep after bankruptcy. The Federal Bankruptcy exemption amounts adjust every 3 years.  The exemption amounts below became effective on April 1, 2022.

Homestead Exemption:

You can keep up to $27,900 of the equity in your residence.

Personal Property Exemptions

  • Household items: You can keep up to $14,875 in total items, with a $700 limit for each item in household goods. This applies to household goods, furniture, appliances, clothing, books, animals, crops and musical instruments.
  • Motor vehicle: A debtor can exempt an interest of up to $4,450 in equity in one vehicle. If you don’t have a car loan, the equity is the value of the car.
  • If you have a car loan, your equity is the value of the vehicle less the balance on the loan. The exemption is for one car per debtor.
  • Jewelry: $1,875 of jewelry is exempt.
  • Tools of the trade: Up to $2,800 of professional books or tools needed for work are exempt.

Health aids:

These are completely exempt without a value limit

Unmatured life insurance:

Up to $14, 875 in loan value, accrued interest or dividends is exempt

Support Payments:

You can keep most types of federal and state benefits, including Social Security, unemployment, and veterans benefits. If you get alimony or spousal maintenance, you can keep the amount reasonably necessary for your support.

Personal Injury Awards:

If you get an award from a personal injury lawsuit, up to $27,900 is exempt. Compensation for loss of future earnings needed for support are exempt. Anything awarded for the wrongful death of a person you depended upon for support is exempt.

Retirement Account Exemptions:

Pension rights and tax exempt 401(k) plans are not property of the estate and the debtor can keep them without a value limit. IRA’s and other retirement savings may be property of the estate, but are currently exempt up to $1,512,350.

Any Property- Wildcard Exemption

  • One of the most important of the federal exemptions is the exemption which can be applied to “any property” called the “wildcard “ exemption. The amount of this exemption is $1,475 per debtor, plus any unused amount of the homestead exemption up to $13,950.
  • The wildcard exemption is often used to protect property that isn’t specifically exempt such as cash, bank accounts and additional vehicles. It is also used to protect property that is worth more than the specific exemption covers-for example jewelry valued at more than $1, 875 or a car with equity exceeding $4,450.

Exemptions Are Doubled for Married Couples Filing Together

If a married couple files Chapter 7 bankruptcy together the exemption amounts are doubled.

How do I Calculate the Asset Value and Exemption Needed?

The value of an asset for bankruptcy purposes is the present sale value of the asset and not it’s purchase price or replacement value.

If an asset is subject to a mortgage, a loan or a lien, it is the value of the asset after deducting what is currently due on the lien or liens. This is known as the equity. It is the current “payoff figure” due on the lien that is considered owing.

If Your Property Exceeds the Exemptions Chapter 13 Might Protect Your Assets

It is important to remember that you will not be able to keep money or property that is not determined to be exempt. If the assets you own are more than the allowed exemptions, we can use a Chapter 13 Bankruptcy to help you keep those assets.

Exemptions in Chapter 13 Bankruptcy

In a Chapter 13 bankruptcy you can keep your non-exempt property, but you must create a three to five year payment plan to reimburse your creditors. The amount you have to pay back equals the value of your unprotected, or nonexempt, assets. This plan works best if you have enough income to afford the payment plan.

Exemptions in Chapter 13:

Chapter 13 bankruptcy works differently than Chapter 7. In a Chapter 13 case, the debtor proposes a three to five year repayment plan where the debtor pays back some or all of debts. The Chapter 13 trustee distributes the funds to creditors.

Creditors in a Chapter 13 case must receive at least what they would have received if the debtor had filed Chapter 7. Therefore the debtor must pay unsecured creditors an amount equal to the value of the nonexempt assets. In most instances, the more nonexempt property the debtor has, the higher the Chapter 13 plan payment will be, so exemptions help reduce the amount the debtor must pay into the Chapter 13 plan.

Example. If a debtor has $1,550 of nonexempt equity in a car, the debtor must pay enough into the Chapter 13 plan to provide $1,550 to unsecured creditors over the life of the Chapter 13 plan.

You can learn more about Chapter 13 and how the repayment plan works by reading about Chapter 13 Bankruptcy.

Contact Us to Determine if a NJ Chapter 7 Bankruptcy is Right for You

If you’re drowning in debt and don’t know where to turn, bankruptcy might be your best option. Most Chapter 7 debtors do not have nonexempt property, which means that they pay nothing to unsecured creditors, keep all their assets and eliminate their debt.

Contact Levitt and Slafkes to schedule a free consultation to determine if bankruptcy is right for you. We know how hard this is for you and we want to help. Contact us at (973) 323-2953 to schedule a free consultation or contact us online.

We are proudly designated as a debt relief agency by an Act of Congress. We have proudly assisted consumers in filing for Bankruptcy Relief for over 30 years. The information on this website and blogs is for general information purposes only. Nothing should be taken as legal advice for any individual case or situation.