Bankruptcy Exemptions

One of the most commonly asked questions by individuals who either need to or are considering filing for Chapter 7 or Chapter 13 bankruptcy protection is whether they will be able to keep/protect their assets from being seized and/or sold by their creditors or the Court-appointed Bankruptcy Trustee. In the overwhelming majority of cases, the answer is an unequivocal, yes. In New Jersey, debtors are given the right to protect all of their assets by asserting the exemptions available to them (which is defined as the amount of equity debtors are allowed to keep in a specific category of assets) under either §522 of the U.S. Bankruptcy Code or New Jersey state law. Since the exemptions available under§522 are significantly greater than those allowed by New Jersey state law, individual debtor filing for bankruptcy protection in New Jersey invariably choose to protect their assets pursuant to §522, also known as the federal exemptions.

In the vast majority of cases, a debtor's assets will fall 100% within the exemptions/protections provided by §522 of the US Bankruptcy Code. A bankruptcy exemption is, by definition, an amount of money and/or equity that a debtor or joint debtors are allowed to keep in a particular category of assets. If a debtor's interest/equity in the specific category of assets is the same or less than the amount of the bankruptcy exemption allotted to that particular asset, then the asset is fully protected from attachment or seizure by the Chapter 7 or 13 Trustee, or by any of the debtor's creditors. In most Chapter 7 and 13 cases, the decision as to whether or not a debtor has any interest/equity in a particular asset, above that allotted by the Bankruptcy Code, is made by the Chapter 7 or 13 Trustee.

Below are several of the many asset categories protected by§522, and the specific amount of the exemptions (equity) debtors are allowed to keep in the asset category described.

The above list includes many of the major federal exemption categories protected by §522, but there are also many other less commonly used exemptions provided for under §522 of the U.S. Bankruptcy Code. These federal exemptions, as indicated above, are different in description and the amount being protected from the various state exemptions, including New Jersey's exemptions. I want the reader to be aware, however, that, while a New Jersey debtor might never choose the New Jersey exemptions over the federal exemptions, a debtor filing for bankruptcy protection in New York may well choose the New York exemptions which allow a homeowner in lower NY State to keep $204,825.00 equity in his/her home and joint debtors owning a home to keep up to $409,650.00 of equity in their homes, (as opposed to §522 Federal exemption which only allows individual and joint debtor homeowners to respectively keep $31,575.00 and $63,150.00 of equity in their homes.

As an example of how these exemptions are applied to an individual or joint debtor's case, under the §522 the federal wildcard exemption, debtor or joint debtors not owning their own home can only protect up to an additional $17,475.00 or $34,950.00 of equity, respectively, in any particular asset which is not fully protected by the specific exemption amount allowed for that asset category. More specifically, if joint debtors in New Jersey have $20,000.00 of equity in 1 of their vehicles, and no other assets that needed wild card protection, they would only be able to protect a total of $10,050.00 of equity in their vehicle under the motor vehicle exemption, but could easily protect the remaining $9,950.00 of equity they have in their vehicle through assertion of their §522 wildcard exemption (if not already used to protect other assets). See §522 exemptions tables listed above.

In the overwhelming majority of cases, the assets owned by prospective debtors clearly fall within the §522 exemption limits and are accordingly fully protected by the United States Bankruptcy Code. Understanding your exemptions is one of the most important legal issues prior to filing a bankruptcy consultation with an experienced bankruptcy attorney is critical. To learn what exemptions you may qualify for, contact our firm to make an appointment with Mr. Alster today. Also see the article in this website entitled "A Chapter 7 Trustee's duties and obligations with regard to seizing a debtor's asset."

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Mr. Alster trusts that the above information will hopefully make all individual(s) who are considering filing for personal bankruptcy protection aware of the importance of consulting with and being represented by an experienced bankruptcy lawyer who has expertise in dealing with these issues. There are many non-lawyers advertising their credentials to draft bankruptcy petitions and/or represent debtors at the Trustee meeting (also called the 341A hearing). Individuals should realize that a non-lawyer cannot appear and/or represent debtors in Bankruptcy Court should a problem arise concerning these or any other legal issues.

From his office in Hackensack, New Jersey, Attorney Alster's services extend throughout the state of New Jersey, as well as New York. Some areas he serves in New Jersey are Passaic County, Bergen County, Hudson County, Essex County, and more; in New York, he serves Rockland County, Manhattan, Queens, and the Bronx.