Are you up to your neck in debts you can no longer repay? Is your phone ringing off the hook with harassing calls and your mailbox filled with final notices from creditors? In this situation, it might be time to consider filing for Chapter 7 personal bankruptcy.
What Is Chapter 7 Personal Bankruptcy?
Under the U.S. Constitution, individuals and married couples have the option to relieve all or part of their debts through bankruptcy when they can no longer meet their obligations to lenders and creditors. Chapter 7 Personal Bankruptcy allows you to have all or part of of your unsecured debts discharged while your non-exempt liquid assets are sold to repay part of the debts.
Debts that can be discharged include but are not limited to:
- Credit card debts
- Unsecured personal loans
- Medical bills
- Payday loans
- Some judgments and taxes
- Promissory notes
Certain debts cannot be discharged. These include:
- Child support and alimony
- Fines and restitution for breaking the law
- Certain tax debts
- Student loans (unless you successfully ask the court to rule it should be discharged because of undue hardship.)
- Regular income tax debt (unless you successfully ask the court to rule to have it discharged.)
Once your liquid assets are sold, the proceeds are divided amongst your creditors and the balance of the debt is discharged.
Filing for Chapter 7 personal bankruptcy has the benefit of immediately stopping all efforts on the part of creditors to collect on your debts. This is called an “automatic stay” and it stops any lawsuits, foreclosures or repossession attempts against you as well as wage garnishments and harassing calls and letters. Creditors also cannot file new lawsuits against you while you undergo Chapter 7 bankruptcy.
What Are Considered Liquid Assets?
In a bankruptcy case, your property is considered as a means of paying back your creditors. These are your “liquid assets” and can be converted to cash. Properties turned over to the court to be liquidated and distributed amongst your creditors are considered non-exempt assets. The State of New Jersey has a list of assets that are exempt from bankruptcy proceedings. You also have the option of using the federal bankruptcy exemptions, however you must choose one list or the other. You cannot mix and match between the two. Notably, the state exemptions do not include any protection of your residence.
Some of the state exempt assets in New Jersey include:
- Goods, personal property and stocks or interest in corporations up to $1000
- Household goods and furniture up to $1000
- Burial plots
- 90% of earned but unpaid wages, if annual income is less than 250% of the federal poverty level. If higher, the amount will be set by a judge.
- Military personnel wages and allowances
- Tax exempt retirement accounts
- IRAs and Roth IRAs up to $1,283,025
- Workers’, unemployment and crime victims’ compensation
- State and local employee pensions including school district employees, teachers, police officers, firefighters, municipal employees, judges, prison employees and civil defense workers amongst others
- Group life or health policy or proceeds
- Health and disability benefits
- Life insurance proceeds if policy prohibits use to pay creditors
- Military and civil defense workers’ disability or death benefits
- Old-age, permanent disability assistance
To find out exactly what property is exempt or not, make sure to contact an experienced New Jersey bankruptcy attorney. Once non-exempt assets have been distributed, the remaining debt is discharged. You are not liable for the discharged debt and creditors cannot attempt to collect these debts from you.
How Do I Qualify for Chapter 7 Bankruptcy?
In order to file for Chapter 7 personal bankruptcy, you may need to pass the New Jersey means test. This test is only required for those whose income is above the state median for your household size. In addition to the means test, you must also receive credit counseling from an approved credit counseling agency. You can find out more information on U.S. Trustee Program’s website.
It is important to seek a consultation with an experienced bankruptcy attorney to determine whether bankruptcy is the best course of action for you. The affordable NJ bankruptcy attorneys at Schneider Freiberger, P.C. can help you understand your options regarding Chapter 7 Bankruptcy.