New Jersey Bankruptcy Law and What Happens to Your Assets
New Jersey bankruptcy law provides a legal framework for individuals and businesses to seek relief from overwhelming debt. Understanding how bankruptcy affects your assets is crucial for making informed decisions about your financial future.
In New Jersey, there are two primary types of personal bankruptcy filings: Chapter 7 and Chapter 13. Each of these chapters has different implications for your assets. Let’s explore them in detail.
Chapter 7 Bankruptcy
Chapter 7, often referred to as “liquidation bankruptcy,” allows debtors to eliminate most unsecured debts, such as credit card bills and medical expenses.
However, it’s essential to note that not all assets are exempt from liquidation. New Jersey allows filers to protect certain properties through exemptions. These exemptions include:
- Homestead Exemption: Protects equity in your primary residence up to $1,000,000.
- Motor Vehicle Exemption: Protects up to $4,000 in equity for one motor vehicle.
- Personal Property Exemption: Covers household goods and furnishings up to $1,000.
- Retirement Accounts: Most retirement accounts, such as 401(k)s and IRAs, are typically exempt.
Anything beyond these exemptions can be considered by the bankruptcy trustee for liquidation. Thus, understanding what is exempt is critical for safeguarding your assets.
Chapter 13 Bankruptcy
Chapter 13, on the other hand, is known as “reorganization bankruptcy.” It allows debtors to keep their assets while restructuring their debt into a manageable repayment plan.
Under Chapter 13, you’re generally allowed to keep all your assets, provided you follow the court-approved repayment plan, which typically lasts three to five years. This plan outlines how much you will pay to creditors each month and how debts will be discharged upon completion.
Some advantages of filing for Chapter 13 include:
- Protection from foreclosure on your home, allowing you to catch up on missed mortgage payments.
- Retention of valuable assets that would otherwise be lost in Chapter 7.
- Ability to adjust secured debts and reduce monthly payments.
Impact on Credit Score
Filing for bankruptcy will have unfavorable effects on your credit score. Typically, a Chapter 7 bankruptcy remains on your credit report for ten years, while a Chapter 13 lasts seven years. However, rebuilding your credit is possible after bankruptcy, with many individuals taking steps to restore their scores successfully.
Conclusion
Understanding New Jersey bankruptcy law is vital for anyone considering bankruptcy as a solution to their debt problems. Knowing how each chapter impacts your assets, along with the available exemptions, helps you navigate the process more effectively. Whether you choose Chapter 7 or Chapter 13, consulting with a qualified bankruptcy attorney can provide essential guidance tailored to your unique financial situation.