New Jersey Bankruptcy Exemptions

New Jersey bankruptcy exemptions let you keep your home, car, retirement accounts, and other property you need for a fresh start when you file bankruptcy. In New Jersey, you have the option of choosing between the New Jersey state exemption laws and the federal bankruptcy exemptions. This article explains how each list works and what happens to property you can't protect.

Choosing an Exemption List in a New Jersey Bankruptcy

Although you have two choices—the New Jersey state exemptions or the federal bankruptcy exemptions—you can't mix and match exemptions from each set. You must pick one list. To help you compare, we've charted both exemption sets below. If you select New Jersey's state exemptions, you can also use the federal nonbankruptcy exemptions.

Other New Jersey Exemptions

New Jersey law also protects several categories that don't come up in every case but can matter a lot depending on your assets and income sources. These include cemetery and burial property, crime victims' compensation awards, unemployment compensation, workers' compensation benefits, certain insurance-related benefits, civil defense worker benefits, and some public pensions. (N.J. Stat. §§ 8A:5-9, 8A:5-10, 8A:5-11, 17:18-12, 17B:24-6 through 17B:24-9, 34:15-29, 43:21-15, 43:21-53, 44:7-35, 52:4B-18; N.J. Stat. App. § A:9-57.6.)

What Happens to Property You Can't Exempt in a New Jersey Bankruptcy?

Nonexempt property is handled differently depending on which chapter you file. In Chapter 7 bankruptcy, the bankruptcy trustee assigned to your case will sell nonexempt property and distribute the proceeds to your creditors. In Chapter 13, you keep all your property, but you pay your creditors the value of any nonexempt property through your repayment plan.

Here's what would happen in each chapter if you owned a car worth $3,000 and your state's vehicle exemption is $5,000:

• Chapter 7 Bankruptcy. You keep the car because the exemption covers the full value. But if the car were worth $15,000, the trustee would sell it, pay you $5,000 for the exemption, and distribute the rest to your unsecured creditors.
• Chapter 13 Bankruptcy. You keep the car no matter what. But if it were worth $15,000, you'd have to pay creditors at least $10,000 (minus sales costs) through your plan.

Keep in mind these examples don't account for a vehicle loan. More on that below.

How Do You Protect a Financed Home or Car in a New Jersey Bankruptcy?

Filing for bankruptcy doesn't let you walk away from a mortgage or car loan and keep the property. If you still owe money, you must pay as agreed. When you bought the property, you gave the lender a lien on it, which is a secured debt that survives bankruptcy and lets the lender foreclose or repossess if you stop paying.

Protecting Financed Property in Chapter 7 Bankruptcy

Chapter 7 has no mechanism to catch up on missed payments over time. Your mortgage or car loan must be current when you file. Fall behind, and you'll likely lose the property. The lender will ask the court to allow foreclosure or repossession during the case or shortly after.

Protecting Financed Property in Chapter 13 Bankruptcy

Chapter 13 lets you keep financed property even if you're behind. You can pay the arrears through your three- to five-year plan while continuing to make regular monthly payments. Before the judge approves your plan, you'll need to show you can afford both.

Some filers can also reduce what they owe by cramming down an auto loan to the car's current value or stripping a junior mortgage or lien from a home, when the law allows it. Learn more about catching up on arrearages in Chapter 13 and how mortgages work in bankruptcy.

New Jersey Bankruptcy Exemption Timing Rules

You can't move to a state with better exemptions right before filing and expect them to apply. Federal law requires you to have lived in a state for at least two years before you can use its exemptions. (11 U.S.C. § 522(b)(3)(A).) If you haven't, you'll use the exemptions of the state where you lived the longest during the 180 days immediately before the two-year period before your filing date.

Here's a simple way to figure it out. Count back two and a half years from your planned filing date. Then ask yourself where you lived the longest during the first six months of that period. That's the state whose exemptions you use.

Example. Suppose you planned to file on January 1, 2022. Your two-and-a-half-year window would start July 1, 2019. You'd use the exemptions of whichever state you lived in the most from July 1, 2019, through December 31, 2019. You wouldn't have to file there, just use that state's exemption list.

How to Verify Available Exemptions in New Jersey

Exemption amounts change, and the figures listed here might not reflect the most current law. Before filing, confirm current amounts and requirements by reading the New Jersey statutes and court rules or by talking to a local bankruptcy attorney. A lawyer can also help you select the exemption list that works best for your situation.

Next Steps

Choosing the right exemption list is one of the most important decisions you'll make in a New Jersey bankruptcy, but there's a lot more involved in filing:

• Learn what you should know about filing for bankruptcy.
• See if you qualify to erase debt in a Chapter 7 case.
• Find out how Chapter 13 solves more problems than Chapter 7.
• Learn about timing your bankruptcy filing and when it makes sense to delay.