Chapter 7 bankruptcy, often called “liquidation bankruptcy,” allows individuals to eliminate debt by selling non-exempt assets to pay creditors. However, not all property is subject to liquidation. Bankruptcy laws provide exemptions that let filers keep certain essential assets, helping them maintain stability after the process.
Understanding what qualifies as exempt property can help individuals protect their belongings while achieving debt relief. These bankruptcy exemptions determine what assets a filer may retain during Chapter 7 proceedings.
Common types of exempt property
Exemptions typically cover property necessary for daily living and financial security. Common categories include:
- Home equity: You can take advantage of federal exemptions for a certain amount of homestead protection
- Public benefits: Social Security, disability benefits, unemployment compensation and workers’ compensation payments cannot be seized by creditors
- Tools of the trade: Equipment or tools necessary for a filer’s profession, such as a mechanic’s tools or a contractor’s equipment, may be exempt up to a reasonable value
- Household essentials: Necessary furniture, appliances and clothing required for daily living are typically protected from liquidation
- Motor vehicles : A car may be exempt up to a specified value, though New Jersey law does not provide a specific vehicle exemption, so federal exemptions may apply
- Retirement accounts : Pensions, 401(k) plans, IRAs and other qualified retirement accounts are fully protected under state law
- Insurance proceeds : Life insurance benefits payable to a dependent and compensation from personal injury claims may be exempt, depending on policy terms and award amounts
While these categories provide general guidance, exemption limits and rules in New Jersey can vary. Some exemptions have specific monetary caps, while others provide full protection for certain assets.
It is important to seek legal guidance to determine the best exemption strategy for your situation. Understanding these protections can help you retain important assets while moving toward financial stability.