Some good news if you are worried about filing for chapter 7 bankruptcy: you will not lose everything. Most people who file for bankruptcy keep their home, vehicle, retirement accounts, and most of their personal property. Federal and NJ state bankruptcy exemptions help you protect your belongings while settling your debt. Here is what you need to know about protecting your property in a bankruptcy case.
1. You Can Use Exemptions to Protect Your Property
When you file for bankruptcy in New Jersey, you can choose between using NJ state exemptions or federal exemptions. Each offers its own unique protections, so which one you use will depend on your specific circumstances and what kind of property you are trying to protect. Typically, these exemptions allow you to keep your home, car, retirement accounts, personal property, and even some personal savings if you have them. These exemptions do not cover luxury items like a fancy sports car or a vacation home. If these items have value, your bankruptcy trustee will likely recommend liquidating them to settle your debts.
2. Bankruptcy Trustees Will Only Sell Valuable Property
Even if some of your property is not covered under bankruptcy exemptions, you could still end up keeping it. A bankruptcy trustee will not waste their time selling property that will not yield a significant payoff for creditors. For example, if you have two cars and you are using federal exemptions, you can only exempt one car. The other car is unexempt and could be used by the trustee to pay off debts. If, however, you do not have much equity in the car, it is likely not worth it for the trustee to spend time selling. In this case, you would probably keep the car even though it technically wouldn't be exempt.
3. If All Else Fails, You Can Buy Your Property Back at a Discount
Suppose you have property that is not protected and is also valuable enough to make a real dent in paying back creditors. In that case, your bankruptcy trustee may sell it back to you for a discounted price (typically about 20% less than what they would sell it for otherwise). It is not often that bankruptcy filers are in a position to make this kind of purchase. Even if they are, a trustee can still opt to sell if they stand to make significantly more—but this could be something to consider if you simply cannot part with a valuable item of property.
The purpose of bankruptcy is to provide a fresh financial start to help you get back on your feet. Stripping you of everything you own wouldn't be helpful towards achieving that goal. And while you may not be able to keep everything you own, utilizing bankruptcy exemptions can help you maximize the amount of property you can save. Veitengruber Law can guide you through these exemptions and help you get the most out of your New Jersey chapter 7 bankruptcy case.