What Are the New Jersey Bankruptcy Exemptions?

What are the New Jersey bankruptcy exemptions and why are they important in a Chapter 7 bankruptcy? 

There are a lot of factors that go into any decision to file bankruptcy. One of the biggest concerns for people thinking about filing Chapter 7 bankruptcy is whether they would have to give up their property. This is a reasonable concern but generally speaking, most people filing a bankruptcy case can keep all of their property by using bankruptcy exemptions. Exemptions are the laws that allow you to protect your property, up to varying amounts, to help you get a true fresh start after a bankruptcy proceeding. 

The basic premise in Chapter 7 bankruptcy is that you turn over your property to the bankruptcy estate, where your bankruptcy trustee then sells it to share equally among your unsecured creditors. That sounds reasonable on the creditor side because it allows them to recover some of the debt that you would otherwise walk away from completely. But it doesn’t work on the debtor/filer side if seeking debt relief through bankruptcy leaves them destitute and unable to start over. Having exemptions available to help you protect property that affords you a basic standard of living helps achieve the right balance under bankruptcy laws. You can assume, however, that if you own property beyond that basic standard, like investment or luxury property, that those things will be liquidated and the proceeds shared among your creditors. 

Does New Jersey allow the use of federal bankruptcy exemptions?

Every state has its own set of bankruptcy exemptions. There is also a set of federal bankruptcy exemptions contained in the United States Bankruptcy Code. Several states, including New Jersey, allow residents to choose between taking the New Jersey bankruptcy exemptions and the federal exemptions. It’s important to note that you have to pick one set of exemptions and stick to it, you can’t pick and choose from both New Jersey exemptions and federal, rather go with the set that gives you the most protection. If you decide to go with the state exemptions you can also use the federal nonbankruptcy exemptions as a supplement, so long as you meet the qualifications. 

If you’ve moved to New Jersey recently it gets a little more complicated. You need to have lived in a state for at least two years to be able to use that state’s exemptions. This is called the 730 days rule. If you haven’t been in New Jersey that long, you need to look back to the 180 day period before two years before your filing date, to determine where you lived for the majority of that period. It sounds confusing but basically, you’re looking back to a six month period beginning two and a half years ago.

Real Property: The New Jersey Homestead Exemption

Each state can differ in ITS exemptions and this is clearly shown in New Jersey with the homestead exemption. A homestead exemption is typically what homeowners use to protect equity in their house or mobile home. New Jersey, however, does not offer any homestead exemption. New Jersey will, however, allow for the survivorship interest of a spouse in a property held as tenancy by the entirety to be protected from creditors. 

If you live in New Jersey and you have equity in your home that you want to protect during bankruptcy this might force your hand to choose the federal exemptions, which do offer a homestead exemption of $27,900 in real property (which married couples can double.) This also includes mobile homes and co-ops, or burial plots plus the unused portion of the homestead exemption up to $13,950 can be used for other property of any kind. 

Personal Property Exemptions

In New Jersey for married couples filing jointly, each spouse can claim the full amount of the personal property exemptions, so long as they have an ownership interest in the property. The below New Jersey bankruptcy exemptions can all be found in the New Jersey Statutes. 

Motor Vehicle - Just like with homestead, New Jersey does not offer an exemption for a motor vehicle. You could use your wildcard exemption (see below) of $1,000 towards equity in your car, but that would be your only option with the state exemptions. Under federal exemptions, a New Jersey filer could protect up to $4,000 equity in a motor vehicle. Married couples filing jointly could each use the exemption on their separate cars if needed.

Clothing is protected with no limit under New Jersey exemptions. Federal exemptions combine clothing along with animals, crops, appliances and furnishings, books, household goods, and musical instruments up to $700 per item, and up to $14,875 total.

Household goods and furniture are exempt under the New Jersey exemptions up to $1,000. Federal exemptions for the same are included in the same section as clothing above.

Goods and chattels, shares of stock or interests in any corporation, and personal property of every kind (excluding clothing) are protected under New Jersey exemptions up to a combined value of $1,000.

Wildcard: Filers using the New Jersey state exemptions can protect up to $1,000 in general personal property. Federal exemptions allow for $1,475 to be applied to any property, as well as the unused portion of homestead exemption up to $13,950.

Money Benefits

Certain property is untouchable by creditors. New Jersey protects the following money or benefits that you are entitled to up to the amounts stated:

New Jersey will protect 90% of earned but unpaid wages if your annual income is less than $7,500. The percentage decreases if the filer’s income is higher. There's additional protection for wages and allowances of military personnel.

New Jersey also offers protection for annuity contract proceeds up to $500 per month. 

In New Jersey the below insurance benefits and/or proceeds are protected in full:

• Health and disability benefits

• Civil defense workers' disability, death, medical or hospital benefits

• Life insurance proceeds, dividends, interest, loan, cash, or surrender value, if not the insured.

• Group life or health policy or proceeds

• Life insurance proceeds if policy prohibits use to pay creditors

• Military member disability or death benefits

• Fraternal benefit society benefits

For contrast, the federal exemptions protect the below insurance benefits and/or proceeds up to the amount state or in full:

• Unmatured life insurance policy except for credit insurance

• Life insurance policy with loan value up to $14,875

• Disability, unemployment or illness benefits

• Life insurance payments for a person you depended on, which you need for support

Other New Jersey Exemptions

New Jersey state law offers protection for the below public benefits and pensions whether or not you are in a Chapter 7 bankruptcy. These exemptions include:

Public Benefits

• Workers' compensation

• Unemployment compensation. This is fully protected under federal exemptions as well, which covers public assistance, Social Security, veteran’s benefits, and unemployment compensation in full. 

• Old-age and permanent disability assistance.

• Crime victims' compensation. Federal exemptions protect this in full as well.

Pensions

New Jersey offers specific pension protection, in full, to the following career industries:

• Civil defense workers

• Teachers

• School district employees

• Judges

• Prison employees

• Alcohol beverage control officers

• County employees

• City workers' ERISA-qualified benefits

• Municipal employees

• Public employees

• Police officers, firefighters, and traffic officers

• City boards of health employees

•  Street and water department employees

• State police

New Jersey exemptions also protect in full a trust containing personal property if it was created under federal tax law.

If you elect instead to use the federal exemptions you can exempt the following retirement savings accounts in full:

• Tax-exempt retirement accounts, including 401(k)s, 403(b)s

• Profit-sharing and money purchase plans

• SEP and SIMPLE IRAs

• Defined benefit plans 

Whereas IRAS and Roth IRAs have a maximum limit under federal exemptions which can change. The threshold is high enough that it does not impact most filers. The amount protected currently is up to $1,512,250.

Filing Chapter 7 bankruptcy? 

If you’re thinking of filing bankruptcy in New Jersey and need legal advice, keep in mind that most bankruptcy attorneys offer a free consultation. This can be helpful to determine if you are on the right track for a debt relief solution that works for you. If it turns out that Chapter 7 won’t protect the property you want to keep, it may turn out that Chapter 13 bankruptcy is a better solution for your financial goals. If it makes sense for you to file Chapter 7 bankruptcy but you can’t afford to hire a bankruptcy lawyer, you can check Upsolve’s screening tool to see if you qualify to use our free filing tool.