Chapter 7 Bankruptcy in New Jersey

Most years, New Jersey Chapter 7 bankruptcy lawyers in New Jersey file thousands of Chapter 7 petitions in the state.  In 2019, there were over 15,000 thousand Chapter 7 filings in NJ.  Chapter 7 filings represented approximately 60% of the bankruptcy petitions in the State.  Close to 10,000 Chapter 13 bankruptcy filings occurred in New Jersey that year.

What is a New Jersey Chapter 7 Bankruptcy?

Chapter 7 of Title 11 of the United States Code governs the process of liquidation under the bankruptcy laws of the United States. 

Individuals who reside, have a place of business, or own property in the United States may file for bankruptcy in a federal court under Chapter 7.  Also known as a “liquidation bankruptcy”, Chapter 7 filings represent most bankruptcy filings not just in New Jersey but also throughout the United States.

The term “liquidation” refers to the job a bankruptcy trustee must conduct.  That is, the trustee must evaluate, sell and distribute the Chapter 7 debtor’s assets.  That’s the bad news.

The good news is some of debtor’s property is “exempt” from the liquidation.  Most liens do survive however including debts for automobile loans, home mortgages and other “secured” transactions.  The value of the exemption varies from state to state.  Consider this list of NJ bankruptcy exemptions.

A NJ bankruptcy trustee can sell any remaining assets if possible.  He/she will then use that money to repay creditors.  As a practical matter, a viable market may not exist for most of the possessions – leaving the creditors out in the cold.  In fact, many types of unsecured debts such as credit cards and personal loans are discharged by in a NJ Chapter 7.

There are some limits, however.  For example, child and spousal support liens will not be discharged.  Nor will income tax liens in many circumstances, student loans, property taxes and court fines for crimes previously committed.

Chapter 7 Bankruptcy in New Jersey Considerations

Consider that a Chapter 7 bankruptcy in New Jersey remains on a debtor’s credit report for 10 years from the date of filing.  This contrasts with a Chapter 13 bankruptcy, which stays on an individual’s credit report for 7 years from the date of filing.  This usually causes a reduction in the person’s credit score sometimes making lending terms unfavorable or limiting access to credit altogether. 

Another consideration is whether the debtor can be successful in a NJ Chapter 7 bankruptcy.  Can the debtor actually afford to repay some or all of the debts from disposable income in five years?  If so, the bankruptcy trustee may effectively force the debtor into a Chapter 13 filing where the debts are repaid accordingly.  In fact, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 imposed a “means test” for Chapter 7 cases.

Chapter 7 Means Test

The purpose of the bankruptcy means test in New Jersey and other states is to determine whether a debtor is eligible for NJ Chapter 7 relief. The test has two parts. Here is a link to the form.

A New Jersey Bankruptcy Attorney will complete the form and submit it with the rest of the filing papers. Keep in mind, the means test is applicable to debtors with consumer debt such as credit cards or unpaid medical bills.

I idea is to check whether your monthly household income falls below NJ’s median income. If your income falles below the median income, you pass the NJ bankruptcy means test and can file for NJ Chapter 7 bankruptcy. That’s the good news.

The better news is that over 85% nationally pass the test. Further, for those who Chapter 7 Bankruptcy New Jereseycannot pass the means test, there is a second part. This part calculates “disposable income” (what remains after paying allowable expenses such as rent, groceries, clothing, medical costs, etc.) If the debtor’s disposable income is low enough, he/she may still qualify under Chapter 7 bankruptcy in New Jersey.

Once the test is “passed” the debtor files for NJ Chapter 7 bankruptcy with forgives most unsecured debts such as credit cards, medical bills and other obligations not “secured” by collateral. If the threshold is not met, then Chapter 13 bankruptcy is an option. Another option is holding out for more time before filing because the means test calculates your financial condition for the last 6 months. If more time will change the calculation, the debtor can recalculate the means test accordingly.

You May Need a NJ Bankruptcy Attorney

Simply because you may qualify for Chapter 7 bankruptcy in New Jersey does not necessarily mean that is the best course of action. This is where an experienced NJ bankruptcy attorney can help.

If you have any questions about Chapter 7 bankruptcy in New Jersey, give us a call 732-722-7690. The initial consultation is free and you can get a better idea on what solutions are available. Call us now and set up a consultation. We are here to help you and are at your service.