NJ Bankruptcy Laws: What Property is Exempt?

When you file for bankruptcy, you may claim certain property as “exempt” from the bankruptcy proceedings. Your exempt property does not become a part of your bankruptcy estate and cannot be used to pay back your creditors. If the exemption doesn’t cover the entire value of the property, it may be sold and you’ll still get the exempt amount in cash. As a practical matter, most people who file bankruptcy don’t lose any of their property.

In New Jersey, you can choose between two sets of exemptions:  the federal exemptions or the local New Jersey exemptions (plus certain supplemental federal exemptions).

Note: statutory exemption limits refer only to your equity in property. In other words, if you have a house worth $200,000 but you owe $175,000, then your equity in the house is $25,000. If you have a car worth $10,000 but you owe $5,000, your interest in the car is $5,000. Exemptions may also cover certain assets in their entirety, such as Social Security income.

Federal Bankruptcy Exemptions

Federal rules exempt up to $22,975 of your interest in your or your dependents’ residence or burial plot and up to $3,675 of your interest in a car. 11 U.S.C.A. § 522(d). Your interest of up to $12,250 total in certain household property is exempt as long as each individual item is worth less than $575. That list includes: “household furnishings, household goods, wearing apparel, appliances, books, animals, crops, or musical instruments, that are held primarily for the personal, family, or household use of the debtor or a dependent of the debtor.” § 522(d)(3). You may claim up to $1,550 in jewelry for personal use. § 522(d)(4). You may claim a “wildcard” exemption for anything up to $1,225. If you don’t use your whole exemption for your residence, you may apply up to $11,500 of the unused part of that exemption for “wildcard” property. § 522(d)(5). You may exempt up to $2,300 in “tools of the trade” which you use in the course of your employment. § 522(d)(6.)

The federal rules exempt any life insurance contract you own, except credit life insurance contracts. § 522(d)(7). You may also exempt any Social Security benefits, unemployment compensation, local public assistance benefits, veteran’s benefits, disability or illness benefits, and as much alimony as you reasonably require for support. § 522(d)(10). You may exempt your right to receive your award as the victim of a crime or a payment for the wrongful death of a person on whom you were dependent. § 522(d)(11). You may also exempt payment from a life insurance contract for an individual upon whom you were a dependent to the extent that such payment is necessary for your support. Id.

If you and your spouse file jointly for bankruptcy, you may double the dollar amount of the federal exemptions. If you wish to apply the doubled exemption to any property, you must own that property jointly.

New Jersey Bankruptcy Exemptions

If you choose to use New Jersey’s local exemptions, you can’t exempt any part of the value of your home and New Jersey doesn’t have an exemption for tools of the trade. You can exempt up to $1,000 of personal property and up to $1,000 of furniture and household goods. You may also keep your clothing and your burial plot. A married couple filing jointly can double the personal property exemption to $2,000.

Under New Jersey rules, you can exempt insurance payments from: an annuity contract (up to $500 monthly), disability or death benefits for a  member of the military, disability, death, or medical benefits for civil defense workers, benefits from a fraternal benefit society, group life or health policy proceeds, and health or disability benefits. You can also exempt proceeds from life insurance if the life insurance contract states that proceeds may not be used to pay your creditors. If you have a pension from work as an alcohol beverage control officer, city board of health employee, civil defense worker, county employee, firefighter, police officer, traffic officer, judge, municipal employee, prison employee, public employee, school district employee, state police officer, street or water department employee, or a teacher, that pension is exempt. Trusts created under federal law are also exempt unless the funds are required to pay back a debt for child support or alimony.

In New Jersey, you may exempt the compensation awarded by the court if you were the victim of a crime, old-age or permanent disability benefits, unemployment benefits, and worker’s compensation. If you work in the military, your wages are exempt. If you work anywhere else and make less than $7,500, you may exempt 90% of wages that you have earned and not yet received. If you make more than $7,500, the judge may decide to exempt some of your wages.

The long and short of it is that, like most of the rest of bankruptcy, exemptions are complicated. The statutes listing the federal exemptions alone are more than 4000 words long. The rules are very specific and your choice of exemptions has serious ramifications. Federal exemptions may protect your interest in your home, but New Jersey exemptions may protect your pension or a valuable trust. Federal exemptions may protect your wedding ring, but New Jersey exemptions may protect your income if you’re in the military. If you’re considering filing for bankruptcy in New Jersey, talk to an experienced attorney to determine whether you need to file for bankruptcy, which type of bankruptcy fits your situation, and which set of exemptions is best for you.