Filing Chapter 7 Bankruptcy in New Jersey

Chapter 7 bankruptcy is often called "liquidation bankruptcy" because the trustee in the bankruptcy case gathers all of the debtor's non-exempt assets and liquidates them to pay off the debtor's creditors. Non-exempt assets are those that are unprotected from Chapter 7 bankruptcy. However, state and federal law does protect some assets even in a liquidation bankruptcy.

Exemption laws vary by state. In New Jersey, a bankruptcy filer can elect to choose either state or federal asset protection - but not both. That is, a debtor cannot mix and match state and federal law but must choose one or the other. Protected assets under both systems will include household goods and furniture (up to a certain dollar amount), certain benefits (the law prohibits many government benefits from garnishment, for example) and many others. Deciding whether state or federal exemption laws is appropriate for a particular bankruptcy filer's situation can be complex and may require the aid of a New Jersey bankruptcy attorney.

Unlike in Chapter 13 bankruptcy, the debtor does not have a repayment plan under Chapter 7. At the end of the process, the debtor receives a discharge from all personal liability for the debt that remains after the asset liquidation. Because Chapter 7 bankruptcy is such a powerful debt relief mechanism, Congress amended the bankruptcy laws in 2005 to limit Chapter 7 bankruptcy filings to those who are in severe financial straits by instituting stricter qualification testing for filing. However, Chapter 7 offers important benefits to those who qualify.

Qualifying for Chapter 7

First, people considering filing Chapter 7 bankruptcy need to determine whether they pass the Chapter 7 "means test." In general, the debtor cannot earn more than the state's median monthly income to qualify for Chapter 7. However, if a debtor has a great deal of debt compared to his or her income, the debtor may still qualify for Chapter 7.

Also, if a person has filed for Chapter 7 within eight years previous of the petition, the debtor will not receive the debt discharge at the end of the bankruptcy process, which means that he or she will still be liable for some of the debt.

Filing Bankruptcy

To begin the bankruptcy process, the debtor needs to complete pre-filing credit counseling from an approved agency. The next step is to file a bankruptcy petition with the court. When a person files the petition, he or she needs to supply the court with information about certain finances, including:

  • All of the filer's creditors and the amount owed
  • The filer's monthly income and expenses
  • A list of all the filer's property

After filing the petition, the debtor meets with creditors and the trustee to discuss the debtor's finances. The trustee and the creditors then determine priority of repaying the creditors.

Finally, the debtor must complete a debtor education course before the court will issue the debt discharge.

Benefits of Chapter 7

One of the biggest benefits of filing Chapter 7 is the automatic stay that bankruptcy puts on most collection actions. An automatic stay stops creditors from calling or harassing debtors for payment. In addition, mortgage lenders may not foreclose and utility companies may not stop services.

The other major benefit to filing bankruptcy is the debt discharge at the end of the process, which releases the debtor from personal liability for debt. For example, creditors may not sue for judgments on outstanding credit card debt, unpaid medical bills or mortgage deficiencies after foreclosures.

Filing Chapter 7 bankruptcy can be complicated, as a number of variables affect the process. If you are thinking of filing, consult an experienced bankruptcy attorney who can discuss all of your options with you.