You may be experiencing crushing debts that force you to consider Chapter 7 bankruptcy in New Jersey as you have to decide which bills to pay each month or call your creditors to switch the payment date. You are not alone. Bankruptcy is a legal debt relief option.
Are you ready to explore bankruptcy in New Jersey to get out of debt? Filing a bankruptcy case could give you the fresh start you are searching for to recover from financial hardship. In this article, we explain the ins and outs of bankruptcy in New Jersey but check out this article if you are interested in understanding the cost of filing bankruptcy in New Jersey.
If you want information about bankruptcy in New Jersey, keep reading to learn about:
- Means Testing in New Jersey — How Does the Means Test Impact My Bankruptcy Case?
- New Jersey Bankruptcy Exemptions
- Chapter 7 vs. Chapter 13 Bankruptcy in New Jersey
- New Jersey Credit Counseling and Debtor Education Courses
- Bankruptcy Courts and Trustees for New Jersey
- Alternatives to Filing Bankruptcy in New Jersey
NJ Means Test for Chapter 7
How does the Means Test impact your bankruptcy case? The bankruptcy means test was added to the bankruptcy forms when Congress revised the Bankruptcy Code in 2005.
The Means Test calculates three figures that are very important to your bankruptcy case — current monthly income, annual median income, and disposable income. These figures determine whether you meet the income qualifications for Chapter 7. They also impact the amount of your Chapter 13 plan and the length of your plan payments.
You may also wonder how much is a bankruptcy lawyer in NJ. The cost can range from $1000 to $2800.
Current Monthly Income or CMI
CMI is the average of your income for the past six months. It is calculated by dividing all household income by six. All income is included in this figure, except for income received under the Social Security Act (SSDI, SSI, and retirement). Examples of income used for CMI include, but may not be limited to:
- Salaries, wages, commissions and bonuses
- Net income from self-employment
- Net income from rental property
- Retirement income, including pensions and annuities
- Workers’ compensation benefits
- Unemployment income
- Spousal support and alimony
- Regular contributions to household income from a non-filing spouse, family member, roommate, etc.
- Dividends, interest, and royalties
Annual Median Income
Annual median income is your CMI multiplied by 12. This figure is crucial because it determines if you “pass” the Means Test to file under Chapter 7. If your median income exceeds the median income for New Jersey, you “fail” the test. You can use an average income calculator to estimate your annual income.
You may need to file under Chapter 13 if your disposable income exceeds a certain amount. Median income figures are adjusted periodically and based on the number of people in your household.
Disposable Income
Individuals who “fail” the median income test must complete the second section of the Means Test. In the second section, allowable monthly expenses and mandatory payroll deductions are deducted from current monthly income. The result is your disposable income.
Allowable monthly expenses include housing, utilities, food, clothing, childcare, court-ordered domestic support payments, term life insurance premiums, health care costs, and other household expenses. Some expenses are based on national standards and the number of people in your home. The court may not allow expenses that exceed average monthly expenses for a household of your size or include luxury expenses.
If your disposable income is below a certain amount, you can qualify for Chapter 7. You may also choose to file under Chapter 13, if you are trying to save your home or have other issues that make filing Chapter 13 more beneficial.
New Jersey Bankruptcy Exemptions
Bankruptcy exemptions are used to protect the equity in your property from your creditors. In a Chapter 7 case, the non-exempt equity can be used to repay your unsecured creditors. This may mean that some homeowners may wonder how to sell your house fast. Others may want to rely on exemptions to see if they can keep their home.
The Chapter 7 trustee sells the asset and uses the funds to pay your debts. In a Chapter 13 case, non-exempt equity in property increases your plan payment. However, bankruptcy exemptions usually protect the equity in property for most debts. For a detailed explanation of how exemptions work, read our blogs about cash exemptions and homestead exemptions.
Congress included federal bankruptcy exemptions in the Bankruptcy Code under 11 U.S.C. §562. The amount of equity you may exempt is reviewed every three years. The current figures took effect on April 1, 2019. NCLC has a list of the federal bankruptcy exemptions on its website.
New Jersey is one of the states that allow debtors to choose between the federal bankruptcy exemptions and state exemptions. You cannot mix and match exemptions. You must choose federal exemptions or New Jersey exemptions. The New Jersey bankruptcy exemptions do not contain a homestead exemption or a motor vehicle exemption. Debtors that have equity in their homes or cars might need to choose federal bankruptcy exemptions.
However, a careful analysis of all exemptions and your property is necessary to make sure you choose the option that provides the best protection of assets in bankruptcy. For example, federal exemptions limit the amount of money in an IRA that is exempt, while New Jersey exemptions for IRA accounts are unlimited.
Chapter 7 vs. Chapter 13 Bankruptcy in New Jersey
Wage garnishment in New Jersey is a common reason for individuals to file bankruptcy. Both Chapter 7 and Chapter 13 bankruptcy cases offer debt relief. However, there are certain advantages and drawbacks for each case. Even if you qualify for a Chapter 7 case, there could be a reason why you might want to file under Chapter 13. Examining each type of bankruptcy case in more detail can help you decide which chapter of bankruptcy is right for you.
Filing Chapter 7 in New Jersey
A Chapter 7 bankruptcy in New Jersey is intended for individuals who cannot afford to repay their debts. Also, individuals who have primarily business debts can file under Chapter 7, even if their income exceeds the median income for New Jersey. Businesses that will not continue to operate may also file under Chapter 7.
Most Chapter 7 cases in New Jersey are no-asset cases, which means the person does not lose any property. The person receives a bankruptcy discharge in about four to six months after filing the case. The bankruptcy discharge releases the person from legal liability for a debt. Not all debts are discharged in bankruptcy. Alimony, child support, and restitution are not discharged in Chapter 7. Also, most tax debts and student loans are not forgiven in bankruptcy.
Filing Chapter 13 in New Jersey
Chapter 13 bankruptcy in New Jersey are repayment plans supervised by the bankruptcy courts. A Chapter 13 trustee administers the estate and distributes your payments to your creditors. If your median income exceeds the median income for New Jersey, your plan payment must be calculated based on a five-year plan. If your median income is below the state’s median income level, you can propose a three-year plan.
Your plan payment is based on several factors. Factors that impact how much money you must pay into the Chapter 13 plan include:
- The amount of your disposable income;
- Whether you owe priority unsecured debts that must be paid in full, such as back child support or tax debts;
- If you are paying mortgage arrearage (past due mortgage payments) to keep your home;
- The amount owed on your car loan; and,
- Whether you have non-exempt equity in any property.
Filing Chapter 13 in New Jersey has some advantages over a Chapter 7 case. For instance, you can catch up on mortgage payments in Chapter 13 to stop foreclosure. You can also include your car payments in your Chapter 13 plan to stretch out the debt another five years. In some cases, you may even lower the amount you owe on the secured portion of your car loan. Tax debts, back alimony, and unpaid child support can also be included in a Chapter 13 plan.
Debtors who own property that might be in jeopardy of being sold in a Chapter 7 case can protect that property in Chapter 13. By paying a little extra each month toward your unsecured debts, you can keep the property.
Also, a bankruptcy quiz can help you understand some of these elements.
New Jersey Credit Counseling and Debtor Education Courses
If you file for bankruptcy relief, you must complete two bankruptcy courses to receive a bankruptcy discharge. The Credit Counseling Course must be completed within 180 days before filing your bankruptcy petition. The Debtor Education Course must be completed after you file the bankruptcy case.
The United States Trustee’s Office must approve all bankruptcy course providers. You must choose a provider from the approved list on the US Trustee’’s website. Each provider sets its fees. You can shop around for a provider that has a low fee. Fees range from $10 to $50, depending on the provider. Most providers offer bankruptcy courses online. However, some providers offer the courses by telephone or in-person.
Failing to complete the Credit Counseling course results in a dismissal of your bankruptcy case. Failing to complete the Debtor Education Course results in a denial of your bankruptcy discharge. If your discharge is denied, your debts are not forgiven.
Bankruptcy Courts and Trustees for New Jersey
The United States Bankruptcy Court for the District of New Jersey handles all bankruptcy cases filed in New Jersey. Bankruptcy courts are located in Camden, Trenton, and Newark. The county of your residence determines which bankruptcy court handles your case. Even though bankruptcy cases are governed by federal law, New Jersey has local rules and local bankruptcy forms that apply to cases filed within the state.
Bankruptcy trustees administer and oversee bankruptcy cases for the United States Trustee’s Office. The trustees are private individuals and not employees of the UST’s office.
Other Debt Relief Options in New Jersey
You may consider other New Jersey debt relief options such as debt settlement, debt management or debt payoff planning.
Bankruptcy may not be the best way to get rid of debts, given your financial circumstances. Before deciding to file for bankruptcy relief, it can be helpful to explore non-bankruptcy options. For example, you may want to consider debt settlement or debt consolidation. It is important to keep in mind that your creditors are not required to work with you to settle your debts. You have a legal responsibility to pay the debts in full. Also, any debt forgiven by a creditor is reported as income to the IRS, which could result in higher tax debt for that year.
