For a lot of my client they are often confused when we speak about exempting their assets. As a New Jersey bankruptcy attorney, most of my day is spent speaking to clients about which assets they can and cannot keep. In bankruptcy, unless your state has opted-out, you can choose to either use the Federal bankruptcy exemptions or your state’s bankruptcy exemptions when you file your bankruptcy case.  In New Jersey, I almost always recommend using the Federal bankruptcy exemptions, instead of New Jersey’s exemptions.  The following article will address why…

The New Jersey Bankruptcy Exemptions

The New Jersey exemptions are very weak. They provide the debtor with very little protection when he files for bankruptcy.

New Jersey Homestead Exemption?

For example, New Jersey has no specific provision to protect your home, also known as the homestead protection.  It should be noted though that there are 2 identiclal bills before the New Jersey legislature to create a homestead exemption.  Under the proposed legislation, the bill will provide a homestead exemption for up to $125,000 per debtor.    These bills were introduced on January 8, 2009 under the New Jersey Homeowners’ Equity Protection Act.  As of now, these bills have not been passed, so in the meantime the New Jersey bankruptcy exemptions are leaving the New Jersey residents high and dry if they have any equity in their homes.

Another example of how limited the New Jersey bankruptcy exemptions are is that there is no motor vehicle exemption.  This basically means that if you have equity in your car and you cannot exempt it with some other New Jersey bankruptcy exemption, then you must either give up your car or buy it back for whatever equity there is on the car.

Federal Bankruptcy Exemptions

The world of the federal bankruptcy exemptions is totally different than the New Jersey bankruptcy exemptions.  Let’s begin with the Federal homestead exemption.

Federal Homestead Exemption

Section 522(d)(1) of the bankruptcy code allows a debtor $20,200 of equity in his home or if married and filing jointly $40,400 of equity in his home.  Contrast this with the fact that currently New Jersey has no homestead exemption amount at all.

Federal Motor Vehicle Exemption

Another great example of the stark contrast between the federal and New Jersey exemptions is that the federal motor vehicle exemption of Section 522(d)(2) allows a debtor retain up to $3,225 of equity in his car, while New Jersey does not even have a motor vehicle exemption.

Summary

There are plenty more examples to show why a debtor will rarely use the New Jersey exemptions in bankruptcy.  Until the New Jersey legislature passes some sort of homestead exemption, the choice of exemption law will remain unified in using the Federal bankruptcy exemptions.

If you have any questions about your particular situation, feel free to give me a call and I will help you figure it out over the phone.