An exemption is an amount that is applied against the value of each property to determine whether the chapter 7 trustee may sell a particular property and/or to determine the amount that must be paid to general unsecured creditors in a chapter 13. In New Jersey, a bankruptcy debtor may either use all of the federal exemptions or all of the state exemptions, but not some of each. In virtually all matters, the New Jersey bankruptcy debtor applies the federal exemptions. The bankruptcy code provides specific exemptions that are applied to specific property for one person. If a husband and wife file for bankruptcy, the federal bankruptcy laws permit each debtor to apply the every exemption for each person.
All of the debtors’ property values must be included on the bankruptcy petition. For each property and/or property category, the bankruptcy code allows an individual to apply and subtract from the equity (property value minus secured interest) the amount of the exemption. If the exemption amount is more than the property’s equity, minus the cost of sale of the property, the individual may keep that particular property and the chapter 7 trustee may not sell the property. If the equity in the property has a higher value than the exemption amount, minus the cost of sale, the trustee may sell the property. However, if the chapter 7 trustee sells the property, the debtor is entitled to receive no less than the exemption amount, from the sale’s proceeds.
A chapter 13 trustee will never sell a debtors’ property. However, in a chapter 13, the debtor must pay to the unsecured creditors, pro rata, at least the amount that a chapter 7 trustee would have received from the sale of any of the debtor’s assets, if the debtor filed a chapter 7 case. Therefore, the exemption analysis must be performed on each of the debtor’s assets in a chapter 13, as well.
The exemption for a debtor’s residence is $21,625.00. This means that each debtor may apply $21,625.00, towards the equity of their residence, if both debtors own the property.
- Value of the residence
- Mortgage payoff
- Value minus payoff (equity)
- Estimated Cost of Sale (10% of value)
- Equity minus cost of sale
- Exemption for husband (one part homeowner)
- Exemption for wife (one part homeowner)
- Unexempt Equity
In the above listed example, the chapter 7 trustee could sell the residence in a chapter 7. The proceeds would pay each debtor $21,625.00, with the balance to be paid to the creditors, after costs. If the debtors filed a chapter 13, the unsecured creditors would be paid at least $76,750.00 pro rata, or 100% if the unsecured debt, is less than $76,750.00. Please note there is additional criteria to determine the amount that must be paid to the unsecured creditors in a chapter 13 case.
The federal exemptions include two wildcard exemptions, which permit each debtor to use $1,150 towards any one property and up to $10,825.00 of the unused portion of the residence exemption, towards any properties. This means that if the value of any property is in excess of the secured debt, minus the cost of sale, plus the exemption for that particular property, the debtor may apply the additional amount of the wildcard exemption that is available.
The exemption for one vehicle is $3,450.00.
- Value of auto
- Auto exemption
- Wildcard application
Based on the above example, the chapter 7 trustee would not be permitted to sell the auto. Also, after the application of the exemptions, the debtor would not be required to pay any additional amount to the unsecured creditors in a chapter 13.
The following is a list of some of the federal exemptions:
- Aggregate value of all Jewelry – $1,450.00
- Aggregate value of all household goods $11,525.00
- Tools of the trade – $2,175.00
- Personal injury payments for pain and suffering – $21,625.00
- The right to receive payments for economic loss is 100% exempt.
- Life insurance contract owned by the debtor is 100% exempt
- The debtors right to receive certain benefits, such as social security, unemployment compensation, public assistance, veteran’s benefits, alimony, and, support are 100% exempt.
- The debtor’s interest, not to exceed $3,450, in value, in one motor vehicle.
- A debtor would use the New Jersey bankruptcy exemptions under unusual situations, such as if a debtor had a substantial insurance claim to be paid. The New Jersey exemptions exempt the entire amount in certain situations, where the federal exemptions do not. However, under such a scenario, the debtor would likely expose for sale other property that the trustee could sell, as the New Jersey exemptions would not likely exempt other property.
Consult a New Jersey Bankruptcy Attorney
Skillful application of Federal exemptions in your NJ bankruptcy case can make a significant difference in what property you can keep and what property you must give up. A NJ bankruptcy attorney that knows the New Jersey Bankruptcy Code and the Federal bankruptcy laws can help you make expert use of the options available to you in your case. Contact Robert Manchel today for a free and confidential evaluation of your case.