Bankruptcy law allows individuals and business that are unable to pay their debts to either restructure them or have them forgiven. There are several different types of bankruptcy, including Chapter 7 and Chapter 13, under the U.S. Bankruptcy Code.
The type of bankruptcy that is best for an individual or business depends on the debtor's specific financial situation.
How Bankruptcy Works in New Jersey
In New Jersey, bankruptcy cases are handled by the United States Bankruptcy Court for the District of New Jersey. To file for bankruptcy in the Garden State, an individual or business must first meet certain eligibility requirements. If eligible, they must then prepare and file a petition with the bankruptcy court.
Depending on the type of bankruptcy they choose, they’ll either have some or all of their debt discharged or create a repayment plan to pay off their debt.
Regardless of the type of bankruptcy that is filed, the ultimate goal is to help the debtor get a fresh start financially and to gain debt relief. It is important to note that bankruptcy can have a significant negative impact on an individual's or a business' credit score. As a result, it may be hard to obtain credit in the future.
Differences Between Chapter 7 Bankruptcy and Chapter 13 Bankruptcy
When filing bankruptcy in New Jersey, an individual or a business must first meet certain eligibility requirements. These requirements are set by federal law and are the same for all states.
Filer must pass a "means test" comparing their income to the median income in New Jersey. If their income is below the median, they can file for Chapter 7. If it is above, the debtor may still be able to file, but will need to pass more tests showing that they do not have the ability to pay their debts.
To qualify for Chapter 13 bankruptcy, the filer must have consistent income, and their debts must fall below $1,395,875 in secured debt (mortgage or vehicle loan) and $465,275 in unsecured debt, such as credit cards and medical bills.
Involves liquidating nonexempt assets to pay off the filer's debts, and remaining debts are generally discharged. It typically takes three to six months to complete.
Involves creating a repayment plan to pay off debts over a three- to five-year period. Filer is required to make regular payments to a bankruptcy trustee, who distributes the funds to creditors.
Discharge of Debts
Most unsecured debts are discharged (eliminated). Some debts, such as certain student loans and most taxes, are not dischargeable.
Filer is required to pay back a portion of the debt, but that amount may be reduced based on income or other factors. At end of the repayment period, dischargeable debts are eliminated.
Effect on Credit
New Jersey Bankruptcy Exemptions vs. Federal Bankruptcy Exemptions
Some states, like California, offer many bankruptcy exemptions, but New Jersey doesn't protect as much property as the federal government does. As a result, many people in the Garden State use the federal exemptions. Some available exemptions are:
New Jersey Exemptions
None. Debtor holding tenancy by the entirety in a property may have some exemptions.
$27,900 per individual;
$55,800 for spouses co-owning property.
Tools of the Trade
$1,000 of personal property with the exception of real estate.
$1,475, plus up to $13,950 of unused homestead exemption.
Cemetery plot, clothes, clothing, corporate interest and stocks are exempt, as is $1,000 for furniture and other household goods.
$700 per item or $14,875 total for appliances, animals, books, clothing, crops, furnishings, household goods and musical instruments.
Up to $1,875 in jewelry.
Payments for lost earnings.
$27,900 personal injury recoveries.
Wrongful death recoveries for an individual on whom the filer depended.
Alimony and child support.
Retirement Accounts and Benefits
Exemptions for some government and public employees.
Retirement accounts (tax-exempt) IRAs and Roth IRAs up to $1,512,350.
How to Find a New Jersey Bankruptcy Lawyer
A New Jersey resident filing for bankruptcy may consider hiring an attorney because bankruptcy cases are often complex and time-consuming. To find a bankruptcy attorney in New Jersey, a debtor can:
- Check the New Jersey Bar Association's directory of attorneys and law firms. Debtors can contact their local bar association through the state bar and ask for a referral to a bankruptcy attorney in their area.
- Search online directories that list attorneys by practice area, including bankruptcy.
- Seek referrals from friends, family or legal professionals for attorney referrals.
Once the debtor has compiled a list of potential bankruptcy attorneys, they should schedule a consultation. During the consultation, they can discuss their financial situation with the bankruptcy attorney to get a sense of the attorney's knowledge and experience.
Debtors should make sure to ask about the attorney’s fees.
How to File a New Jersey Bankruptcy
To file for bankruptcy in New Jersey, debtors must follow certain steps:
- Eligibility. First determine whether they are eligible for bankruptcy. This depends on their specific financial situation and the type of bankruptcy they seek.
- Credit Course. Complete an authorized credit counseling course, which they must take within 180 days of filing for bankruptcy.
- Documents. Gather supporting documents related to their case, including a list of assets, debts, expenses, income in the form of pay stubs, credit card statements, bank statements and tax files.
- File. File the petition with the United States Bankruptcy Court for the District of New Jersey. The petition must be accompanied by the required documents and a filing fee, which varies depending on the type of bankruptcy.
- Creditor Meeting. Attend a meeting of creditors with a bankruptcy trustee to discuss the case approximately 30 to 45 days after the petition is filed.
- Other Courses. Attend any required financial management courses (for a Chapter 13 bankruptcy).
- Discharge. Receive a discharge of their debts at completion of successful case.
Where Are the Bankruptcy Courts in New Jersey?
In New Jersey, bankruptcy cases are handled by the United States Bankruptcy Court for the District of New Jersey. The bankruptcy court has three divisions: Newark Division, Trenton Division and Camden Division.
Martin Luther King, Jr. Federal Building, 50 Walnut Street, Newark, NJ 07102
Essex, Hudson, Morris, and Sussex
Clarkson S. Fisher, U.S. Courthouse, 402 East State Street, Trenton, NJ 08608
Burlington, Mercer, Middlesex, Monmouth, Ocean, and Somerset
U.S. Post Office and Courthouse 401 Market Street, Camden, NJ 08101
Atlantic, Burlington, Camden, Cape May, Cumberland, Gloucester, and Salem
Debtors should file a bankruptcy petition at the division that serves their county. If they are a business, they should file at the county division of the business location.
FAQs About Bankruptcy in New Jersey
How do I claim bankruptcy in New Jersey?
To file for bankruptcy in New Jersey, first determine whether you are eligible and choose which chapter is right for you. Gather the necessary financial and personal documents and take a credit counseling course.
Then file a bankruptcy petition with the bankruptcy court and attend the mandatory meeting of creditors. If filing for Chapter 13 bankruptcy, you’ll also complete a financial management course.
What happens when you declare bankruptcy in New Jersey?
When you declare bankruptcy in New Jersey, a bankruptcy case is opened, and a bankruptcy trustee is appointed to oversee the process. Your assets are examined and evaluated by the bankruptcy trustee, who can sell some assets to pay your debts.
You will be required to attend a mandatory hearing where you will be questioned by the bankruptcy trustee and any creditors who choose to attend.
If you file Chapter 7 bankruptcy, your debts will be discharged. If you file Chapter 13 bankruptcy, you will be required to develop a repayment plan to pay off the debts over a period of three to five years. Once the bankruptcy process is complete, you receive a discharge of the debt.
How long does it take to file for bankruptcy in New Jersey?
In Chapter 7 bankruptcy, the process may take anywhere from a few weeks to a few months. If you are an individual seeking Chapter 13 bankruptcy, the process may take up to five years, as you will be required to make payments to your creditors over the course of a repayment plan.
If you are a business seeking Chapter 11 bankruptcy, the process may take even longer, as you will need to develop a plan to reorganize your debts and restructure your business.
What is Chapter 13 bankruptcy in New Jersey?
Chapter 13 bankruptcy is a type of personal bankruptcy available to individuals in New Jersey who have a regular income and who owe a certain amount of debt. Chapter 13 bankruptcy is often referred to as "reorganization" bankruptcy, as it allows individuals to reorganize their debts and establish a repayment plan to pay off their creditors over time.
What is the difference between Chapter 7 and Chapter 13 bankruptcy in New Jersey?
Chapter 13 is only available to individuals, while Chapter 7 is available to both businesses and individuals. Unlike Chapter 13, Chapter 7 involves liquidating nonexempt assets to pay off debts.
What are the qualifications for bankruptcy in New Jersey?
That depends on what type of bankruptcy you're declaring. To file Chapter 7 bankruptcy, the debtor must pass a means test and compare their income to the median income in New Jersey. For Chapter 13, you'll need a regular income and have debts that fall below a certain amount – $1,395,875 in secured debt and $465,275 in unsecured debt.
- U.S. Courts: Staff Directory
- U.S. Courts: Where to File by County
- Kent Anderson Law: Chapter 13 Limits Increase to $2,750,000
- FindLaw: Search Top Lawyers Near You
- Justia: Find Lawyers by Practice Area
- Justice: Gov: List of Credit Counseling Agencies Approved Pursuant to 11 U.S.C. Section 111
- U.S. Courts.Gov: Bankruptcy Forms
- U.S. Courts.Gov: Bankruptcy Basics
Michelle Nati is an associate editor and writer who has reported on legal, criminal and government news for PasadenaNow.com and Complex Media. She holds a B.A. in Communications and English from Niagara University.