No NJ Homestead Exemption in Bankruptcy But There May Be Hope
- October 31, 2013
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New Jersey bankruptcy exemption laws do not include an exemption for the homestead, but there may be an option for people who find themselves in this precarious predicament. In some states, debtors can protect a limitless amount of home equity from the eager hands of creditors and the bankruptcy trustee during bankruptcy proceedings. Unfortunately, New Jersey is not one of those states. There may be hope for New Jersey residents filing bankruptcy who hope to keep their homes. New Jersey permits debtors the option of choosing between state and federal exemptions during a bankruptcy. Under the allowable federal exemptions, there is a $22,975 federal homestead exemption that would be available to people in New Jersey to take advantage of. In order to qualify for this federal homestead exemption a New Jersey resident must be filing for chapter 7 bankruptcy and must choose to use the federal bankruptcy exemptions, meaning they would use all federal bankruptcy provisions and would not be able to select other new Jersey provisions that may be favorable to their bankruptcy filing for other assets. Homestead exemptions provide debtors with the opportunity to protect their home equity when in bankruptcy by exempting the debtor’s home equity from the reach of the bankruptcy trustee. During the proceedings, the interested parties are not concerned with the actual value of the home, but the debtor’s home equity is what becomes the focus in a homestead analysis. For instance, a debtor’s home may be worth $400,000, but if he or she still owes $380,000 on the house there is only $20,000 of home equity. The homestead exemption analysis is only concerned with the home equity amount for the purposes of the bankruptcy and the exemption. Therefore, if the home equity number falls to $22,975 or below (as in the example above), the debtor can choose to use the federal bankruptcy homestead exemption and shield his or her home from the trustee. It is important to note, that the debtor should be able to maintain his or her mortgage payments on the home if they plan on keeping their home in a chapter 7 bankruptcy proceeding, notwithstanding the federal homestead exemption. This exemption does not strip off the remaining debt but simply protects equity, up to the exemption amount, from being applied to payoff of creditors claims. If you are facing foreclosure or simply overwhelmed with debt and believe bankruptcy may be a solution you should be aware the rules of bankruptcy are very complex. It is imperative that you obtain experienced counsel to review your matter and represent you in your bankruptcy filing. For more information regarding, Chapter 7 bankruptcy, Chapter 13 bankruptcy, foreclosure or other consumer debt matters in New Jersey visit TheNJBankruptcyAttorney.com. This blog is for informational purposes only and not intended to replace the advice of an attorney.