The debt is not the end. It's a problem with a legal solution.

Bankruptcy in New Jersey

Overwhelming debt can affect every aspect of your life, from constant creditor calls and wage garnishments to the threat of losing your home or vehicle. Bankruptcy provides a legally sanctioned path to eliminate or reorganize debt and work toward financial stability. While bankruptcy is governed by the federal Bankruptcy Code (11 U.S.C. sections 101-1532)1, New Jersey state law plays a critical role in determining which property exemptions apply and how the process affects state-specific debts and obligations.

At Simon Law Group, our bankruptcy attorneys guide individuals and businesses through the bankruptcy process in the United States Bankruptcy Court for the District of New Jersey. We analyze each client's financial situation to determine whether Chapter 7 liquidation or Chapter 13 reorganization provides the most effective path to debt relief, and we handle every aspect of the case from the initial filing through discharge.

Chapter 7 Bankruptcy: Liquidation

Chapter 7 bankruptcy, often called liquidation bankruptcy, provides a relatively quick discharge of most unsecured debts, including credit card balances, medical bills, and personal loans. A typical Chapter 7 case is completed within three to four months from the date of filing. In exchange for the discharge, a court-appointed trustee may liquidate certain non-exempt assets to pay creditors, although in most consumer cases, debtors are able to protect all of their property through available exemptions.

The Means Test

Not everyone qualifies for Chapter 7. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 introduced the means test (11 U.S.C. section 707(b)1), which evaluates whether a debtor's income is low enough to file under Chapter 7. The test compares the debtor's current monthly income, averaged over the six months preceding the filing, to the median income for a household of the same size in New Jersey. If the debtor's income falls below the state median, they presumptively qualify for Chapter 7. If income exceeds the median, a more detailed calculation of allowable expenses and disposable income determines eligibility.

New Jersey Bankruptcy Exemptions

New Jersey debtors may generally choose between the federal exemptions under 11 U.S.C. section 522(d)2 and available New Jersey state exemptions, including N.J.S.A. 2A:17-193 and related statutes. The right election depends on the asset profile. Key New Jersey exemptions include:

• Personal property exemption of one thousand dollars for any personal property (N.J.S.A. 2A:17-194)
• Clothing and other personal belongings reasonably necessary for daily life
• Retirement accounts including 401(k) plans, IRAs, and pensions, which are generally fully exempt under both federal and state law
• Life insurance proceeds and annuities payable to a spouse, child, or dependent (N.J.S.A. 17B:24-65)
• Workers' compensation benefits (N.J.S.A. 34:15-296)
• Social Security benefits and disability payments under federal law (42 U.S.C. § 4077)
• Wages: a wage execution generally may not exceed 10% of earnings unless the debtor's income exceeds four hundred percent of the federal poverty level (N.J.S.A. 2A:17-568)

New Jersey notably does not provide a homestead exemption, which means that equity in a primary residence is not protected by a New Jersey homestead exemption. Federal exemptions may still protect some home equity when elected. This makes strategic planning with an experienced attorney particularly important for New Jersey homeowners considering Chapter 7.

Chapter 13 Bankruptcy: Reorganization

Chapter 13 bankruptcy allows individuals with regular income to restructure their debts through a three- to five-year repayment plan. Unlike Chapter 7, Chapter 13 does not require the liquidation of assets. Instead, the debtor makes monthly payments to a Chapter 13 trustee, who distributes funds to creditors according to the confirmed plan.

Chapter 13 is particularly valuable for New Jersey debtors who:

• Earn too much to qualify for Chapter 7 under the means test
• Are behind on mortgage payments and want to cure the arrearage while keeping their home
• Owe priority debts such as back taxes or domestic support obligations that cannot be discharged in Chapter 7
• Want to protect non-exempt assets, such as home equity, that would be at risk in Chapter 7
• Need to address secured debts such as vehicle loans through cramdown provisions
• Have co-signers they wish to protect from collection through the co-debtor stay under 11 U.S.C. section 13011, which Chapter 7 does not provide

The Automatic Stay

One of the most immediate and powerful benefits of filing for bankruptcy is the automatic stay, which takes effect the moment the petition is filed (11 U.S.C. section 3621). The automatic stay prohibits creditors from taking any collection action against the debtor, including:

• Wage garnishments
• Lawsuits and ongoing litigation against the debtor
• Foreclosure proceedings and sheriff's sales
• Repossession of vehicles and personal property
• Telephone calls, letters, and other creditor harassment
• Utility disconnections (for twenty days after filing)

Creditors who violate the automatic stay may be held in contempt of court and required to pay actual damages, including attorney's fees. However, the stay has limitations: it does not stop criminal proceedings, certain tax proceedings, or domestic support obligation collections. Additionally, if a debtor had a prior bankruptcy case dismissed within the preceding year, the automatic stay may be limited to thirty days unless the court extends it upon a showing of good faith.

Debts That Cannot Be Discharged

While bankruptcy eliminates most unsecured debts, certain obligations survive the discharge under 11 U.S.C. section 5231. Non-dischargeable debts include:

• Most student loans, unless the debtor proves undue hardship
• Domestic support obligations including alimony and child support
• Recent tax debts that do not meet specific age and filing requirements
• Debts arising from fraud, embezzlement, or willful and malicious injury
• Government fines and penalties
• Debts not listed in the bankruptcy schedules (unless the creditor had notice of the case)

This list is the reason a careful pre-filing analysis matters more than the filing itself. The debts that survive a discharge are frequently the ones causing the most pressure: the back taxes, the support arrears, the student loans. If those are what is driving the case, filing without a plan to address them can mean surrendering non-exempt assets to a trustee while the debt that actually hurts walks out the other side untouched. The work we do before anything is filed is to separate what bankruptcy will clear from what it will not, and to choose the chapter, and the exemption set, that fits the debt you are actually carrying. That is also why the same set of facts can point to Chapter 7 for one client and Chapter 13 for another.

Related Practice Areas

• Foreclosure Defense: protect your home from foreclosure proceedings
• Real Estate Transactions: residential and commercial closings
• Social Security Disability (SSDI): if disability contributes to financial difficulty
• Civil Litigation: resolving debt-related disputes
• Estate Planning: protecting assets for the future after recovery

Compare Chapter 7, Chapter 13, and non-bankruptcy options against the same facts

The useful first review is a household balance sheet, not a chapter label. Counsel can compare income under the means test, secured and unsecured debt, home equity, mortgage arrears, pending collection or foreclosure dates, recent transfers, and the property each exemption set would protect. Bring recent pay records, tax returns, account statements, creditor notices, loan statements, and every lawsuit or sale notice. That record shows whether Chapter 7, a Chapter 13 cure plan, negotiation, or another path addresses the actual pressure. Use the intake form or call (800) 709-1131 to request that comparison before anything is filed.

Focused Bankruptcy Pages

Each page covers the specific federal-code chapter and the New-Jersey-specific procedural and exemption issues that apply.

• Chapter 7 Bankruptcy (New Jersey): federal Bankruptcy Code §§ 701-784 liquidation; means test under § 707(b); automatic stay; discharge under § 727; federal vs. NJ state exemptions; 341 Meeting; reaffirmation.
• Chapter 13 Bankruptcy (New Jersey): federal §§ 1301-1330 reorganization; 3-5 year plan; mortgage-arrears cure under § 1322(b)(5); cramdown under § 1325(a)(5)(B); 910-day vehicle rule; lien-strip on wholly-unsecured junior mortgages under § 506(d); discharge under § 1328.
• Sheriff's Sale Defense: late-stage foreclosure with Chapter 13 stay as primary stop-the-sale tool; two-adjournment right under N.J.S.A. 2A:17-36; 10-day right of redemption under R. 4:65-5.
• Loan Modification (New Jersey): GSE Flex, FHA Loss Mitigation Waterfall, VA modifications; Federal Regulation X dual-tracking protection; RESPA QWR practice; NJ Foreclosure Mediation Program.