This comprehensive guide helps New Jersey residents understand bankruptcy options, compare Chapter 7 vs. Chapter 13, navigate state exemption laws, and complete the filing process with confidence.
Updated 10/10/2025
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If you're struggling with overwhelming debt in New Jersey, you likely feel alone. But facing financial challenges is a part of life, and in some cases, filing for bankruptcy can provide a fresh start.
This comprehensive guide will help you get started by answering common questions and explaining New Jersey's unique exemption choices, eligibility requirements, and the step-by-step process. Whether you're considering Chapter 7 or Chapter 13 bankruptcy, this guide aims to help you determine if bankruptcy is the right choice for you and move forward with confidence.
What Is Bankruptcy? A Simple Explanation
Bankruptcy is often an excellent option for individuals seeking debt relief. It works by unwinding the contracts between you and your creditors, eliminating your responsibility to pay, and providing a fresh financial start.
Financial Situations Bankruptcy Helps
Bankruptcy might be the right solution if you're experiencing:
- overwhelming debt you can't pay despite budgeting and cutting expenses
- creditor harassment through calls, letters, or lawsuits
- wage garnishment or threats of asset seizure
- risk of home foreclosure or car repossession
- medical debt from illness or injury, or
- job loss or reduced income makes debt payments impossible.
Bankruptcy provides immediate relief through the " automatic stay," which stops most collection actions as soon as you file.
Other Alternatives
Bankruptcy isn't the right choice for everyone. However, if you haven't had success with budgeting, cutting expenses, and other bankruptcy alternatives, such as debt consolidation, negotiation with creditors, or credit counseling, it's very possibly a good choice.
Understanding Chapter 7 and Chapter 13 Bankruptcy in New Jersey
Your most significant decision in bankruptcy is determining whether Chapter 7 or Chapter 13 offers the best solution for your financial situation. This choice is a multi-step process, and understanding the core differences is crucial.
Which Is Best for Me in New Jersey?
New Jersey residents typically have two standard options to choose from—Chapters 7 and 13. The table shows you the primary differences between the two to help you decide.
Chapter 7 vs. Chapter 13 Bankruptcy: A Quick Comparison
|
Chapter 7 "Liquidation" Bankruptcy |
Chapter 13 "Repayment Plan" Bankruptcy | |
|
Duration |
3 to 6 months | 3 to 5 years |
|
Property |
Unprotected assets are sold for creditors. | Filers keep all assets. |
|
Qualifications |
Income must be below limits. | Must have enough regular income to fund a plan. |
|
Debt Repayment Required |
No | Yes |
|
Best for |
Individuals with lower income and few assets. | Those seeking to keep property they'd lose in Chapter 7. |
Chapter 7 vs. Chapter 13 Bankruptcy in New Jersey: Key Differences
Below is a clear comparison of Chapters 7 and 13.
Chapter 7 Bankruptcy: Liquidation
The primary benefit of Chapter 7 is that it provides a quick path to debt erasure.
- Process. Typically takes three to six months to complete.
- Debt elimination. Erases or "discharges" most unsecured debts, like credit card balances, medical bills, and personal loans, without requiring a repayment plan.
- Property loss. You might lose "nonexempt property" or assets not protected by New Jersey's bankruptcy exemptions. The Chapter 7 trustee sells unnecessary property, usually luxury items or assets, when the value exceeds exemption limits.
- No catch-up plan. It doesn't offer a payment plan to catch up on late mortgage or car payments, so you could lose your home or financed vehicle if you are behind on the loans when you file.
- Best for. Generally well-suited for individuals with limited income and few valuable assets.
- Bankruptcy quiz. This short Chapter 7 bankruptcy quiz will help you learn more about whether Chapter 7 will work for you.
What Does Chapter 13 Bankruptcy Involve?
Chapter 13 enables you to retain your property while repaying debts through a structured repayment plan.
- Debt repayment. Involves a three- to five-year repayment plan.
- Property protection. Allows you to keep all your property, including nonexempt assets.
- Save a home or a car. Offers strategies to catch up on late mortgage or car payments, potentially saving your home from foreclosure or your car from repossession.
- Manage nondischargeable debts. Can force creditors into a payment plan, enabling you to repay significant "nondischargeable debts" that bankruptcy won't erase over time.
- Potential downside. Monthly plan payments can be high, making it unaffordable for some.
- Qualifications. Requires a regular income source to fund the necessary repayment plan.
- Calculator. Calculate the minimum Chapter 13 payment you must be able to afford to qualify.
Chapter 7 vs. Chapter 13 Bankruptcy: A Comprehensive Comparison
To make an informed decision between Chapter 7 and Chapter 13 bankruptcy, it's crucial to thoroughly assess your individual financial situation, including your debts, property, qualifications, and more.
|
Chapter 7 "Liquidation" Bankruptcy |
Chapter 13 "Repayment Plan" Bankruptcy | Citations | |
|
Duration to Discharge |
3 to 6 months | 3 to 5 years | 11 U.S.C. § 1322(d); § 727(a) |
|
Filing Fee |
$338 | $313 |
28 U.S.C. § 1930; as of October 2025 (subject to change) |
|
Potential Property Loss |
Yes. Nonexempt assets are sold for creditors. | No. Filers pay the value of nonexempt assets through the plan and keep the property. | 11 U.S.C. § 541, § 726, § 1322(b)(2) |
|
Means Test Required |
Yes. Income can't exceed limits; filers must not have disposable income to repay debts. |
No. However, filers must earn enough to pay the required Chapter 13 plan amount. | 11 U.S.C. § 707(b); § 1325(b) |
|
Debt Limits |
None | Unsecured $526,700; secured $1,580,125 | 11 U.S.C. § 109(e) April 1, 2025 - March 31, 2028 |
|
Best For |
Lower income, limited assets. |
Regular income, want to avoid property loss. |
11 U.S.C. § 101(10A); § 109(e) |
|
Biggest Benefits |
Erases most debts quickly without requiring repayment. |
Saves homes and cars by catching up on payments over time; can pay to keep property that would be lost in Chapter 7; can repay nondischargeable debts over time. |
11 U.S.C. § 362 (automatic stay) |
|
Main Downsides |
Property not covered by exemptions is lost. |
The repayment plan requires payment of all disposable income to creditors for years, with court oversight. Payment isn't always affordable. |
11 U.S.C. § 727(a); § 1307 |
|
Mortgage and Car Payments |
No catch-up for missed payments, risk of property loss to the lender. | Can catch up on missed payments in the plan and keep a house, car, or other property serving as collateral. | 11 U.S.C. § 1322(b)(5) |
|
Nondischargeable Debts |
Debts that aren't eliminated include child support, many taxes, and student loans. Debt will remain after bankruptcy. |
Nondischargeable debts are repaid in the plan. | 11 U.S.C. § 523(a) |
|
Previous Filings |
8 years after prior Ch. 7; 6 after Ch. 13 |
4 years after Ch. 7; 2 years after Ch. 13 |
11 U.S.C. § 727(a)(8); § 1328(f) |
How to Decide Which Bankruptcy Chapter Is Best For You in New Jersey
You'll want to analyze three primary financial areas.
1. Evaluate Your Debts
Identify which debts you can eliminate through bankruptcy and which are likely to remain.
Which Debts Are Wiped Out in a New Jersey Bankruptcy?
The following are typically dischargeable—the debts you can erase:
- credit card balances
- medical bills
- personal loans and lines of credit
- past-due utility payments
- rent and lease debt
- business debts
- deficiency balances from foreclosure or repossession, and
- mortgage or car payments if you're willing to surrender the car, house, or other property securing the debt.
Which Debts Remain?
These are common nondischargeable debts--the type you can't erase:
- Domestic support obligations, such as child support and alimony.
- Most recent tax debts (some older income taxes can be discharged if they meet specific timing and filing requirements).
- Criminal fines and debts incurred through fraud or intentional injury.
- Recent luxury purchases or cash advances.
Student loans. These are notoriously difficult to discharge. To eliminate student loan debt in bankruptcy, you typically need to file and win a separate lawsuit in court, proving "undue hardship." However, in 2023, steps were taken to ease the student loan discharge process, and a new student loan bankruptcy form was introduced.
Choosing a Chapter for Debts: Summary
- Chapter 13 works well if you need time to repay nondischargeable debts. It allows you to force creditors into a payment plan, enabling you to repay the balance over three to five years.
- If you're behind on mortgage or car payments and wish to keep your home or vehicle, Chapter 13's repayment plan allows you to catch up on missed payments over time and prevent foreclosure or repossession. Chapter 7 filers typically lose financed homes and cars to the lender if the payments are delinquent when they file.
2. Evaluate Your Property
New Jersey's exemption laws play a significant role in determining what property you can keep.
Exempt vs. Nonexempt Property
- Exempt property. You keep assets protected by specific bankruptcy exemptions.
- Nonexempt property. In Chapter 7, nonexempt property is sold for the creditors. In Chapter 13, you can keep nonexempt property by paying its value in your repayment plan.
New Jersey Bankruptcy Exemptions Explained
New Jersey is one of the states that allows you to choose between:
- New Jersey state exemptions (traditional state protections)
- Federal bankruptcy exemptions (updated and valid between April 1, 2025, and March 31, 2028).
This is an important choice. New Jersey residents must choose between state or federal bankruptcy exemptions—you can't mix and match. Compare both options carefully before deciding.
New Jersey State Bankruptcy Exemptions (2025)
| Exemption |
Amount |
Statute |
| Homestead |
None |
N/A |
| Motor Vehicle |
None |
N/A |
| Personal Property |
Up to $1,000 in household goods and furnishings. |
N.J. Stat. Ann. § 2A:17-19 |
| Clothing |
Necessary wearing apparel. |
N.J. Stat. Ann. § 2A:17-19 |
| Wages |
90% of wages if income is less than $7,500. |
N.J. Stat. Ann. § 2A:17-56 |
| Retirement Accounts |
Public employees' pensions, teachers, police, firefighters. |
N.J. Stat. Ann. §§ 18A:66-51, 43:15A-53 |
| Insurance Benefits |
Life insurance proceeds, annuity benefits up to $500 per month, and group life or health insurance. |
N.J. Stat. Ann. §§ 17:18-12, 17B:24-6 |
| Wildcard |
Up to $1,000 of any personal property. |
N.J. Stat. Ann. § 2A:17-19 |
Federal Bankruptcy Exemptions (2025)
| Exemption |
Amount |
Statute |
| Homestead |
$31,575 equity in principal residence |
11 U.S.C. § 522(d)(1) |
| Motor Vehicle |
$5,025 equity |
11 U.S.C. § 522(d)(2) |
| Household Goods |
$16,850 aggregate; $800 per item |
11 U.S.C. § 522(d)(3) |
| Jewelry |
$2,125 |
11 U.S.C. § 522(d)(4) |
| Tools of Trade |
$3,175 |
11 U.S.C. § 522(d)(6) |
| Wildcard |
$1,675; up to $15,800 unused homestead |
11 U.S.C. § 522(d)(5) |
| Retirement Accounts |
IRAs up to $1,711,975; qualified plans unlimited |
11 U.S.C. § 522(n) |
| Insurance |
Unmatured life insurance $16,850 |
11 U.S.C. § 522(d)(8) |
Residency Requirement
To utilize New Jersey's bankruptcy exemptions, you must have resided in the state for at least 730 days. If you've moved more recently, you might need to use the exemptions from your previous state of residence if you don't want to use the federal bankruptcy exemptions.
Choosing a Chapter for Property: Summary
- If you possess significant nonexempt property that you are unwilling to surrender, Chapter 13 is the preferred option. It allows you to retain these assets by incorporating their value into your repayment plan.
- Chapter 13 can provide a mechanism to save your home by allowing you to make up missed payments and restructure your debt, an option not available in Chapter 7.
- It's also the better choice if you're behind on a mortgage or car loan and want to keep the home or car.
3. Evaluate Your Qualifications
Your eligibility for Chapter 7 or Chapter 13 bankruptcy depends on several factors, including your income, debt levels, and previous bankruptcy filings.
The Chapter 7 Bankruptcy Means Test: New Jersey Income Limits
- Income below median. If your gross yearly family income is below New Jersey's median income for your family size, you will likely qualify for Chapter 7. For example, as of May 1, 2025, you would qualify at or below the following limits: $87,010 for a one-person household and $157,479 for a four-person household. The U.S. Trustee Program "Means Testing" page has current amounts.
- Income above median. If your income exceeds the median, an additional "means test" calculation is necessary to determine your eligibility. This test assesses your disposable income to see if you have the ability to repay a portion of your debts.
- Additional requirement. The means test looks at the prior six months of income. If your current income and expenses reveal that you can afford to repay some debt, you won't qualify for Chapter 7.
Chapter 13 Requirements
- Regular income. A fundamental requirement for Chapter 13 is having a regular income source to fund your repayment plan.
- Debt limits. Your total debt must fall within specific limits, which are updated periodically. Check the above chart for amounts.
Step-by-Step Guide to Filing Bankruptcy in New Jersey
Here is an overview and timeline of the steps involved in a bankruptcy journey.
- Gather documents.
- Complete credit counseling.
- Prepare and file bankruptcy forms.
- Attend the creditors' meeting.
- Complete financial management course.
- Receive discharge.
1. Gather Your Documents
You'll need the following financial documents to prepare your petition. You'll also need to forward copies of some to the trustee appointed to your case. While it can take time to assemble everything in the list, taking copies to your legal consultation will help the lawyer properly evaluate your case.
Tax Returns
- two years for Chapter 7 (the most recent for the trustee)
- four years for Chapter 13, or
- order tax transcripts.
Proof of Income (Six Months)
- paycheck and unemployment benefits stubs
- other proof of income, such as rental income, or proof of domestic support payments, and
- small business owners filing for bankruptcy need two years of yearly profit and loss statements and one year of monthly profit and loss statements.
Financial and Billing Statements (Two Months)
- bank account, investment, and retirement statements
- credit card and other billing statements, and
- collection notices.
Identification
- driver's license, I.D. card, government I.D., or passport
- Social Security card or proof of Social Security number, or
- obtain the necessary I.D. or find out what alternatives the trustee will accept as proof.
Additional Documents
- mortgage and car loan statements
- property list with values (group small items together, such as clothing, cookware, and bedding)
- home, car, and other valuations (Realtor.com; Zillow; Nada.com; Kelley Blue Book; eBay)
- repair estimates for damaged property
- photographs of unusual items and damaged property
- liability insurance policies
- credit report (annualcreditreport.com)
- marital settlement agreements, and
- other documents reasonably related to your financial affairs.
2. Complete Credit Counseling
You must complete a credit counseling course before filing for bankruptcy.
- Approved agencies. Go to the "Credit Counseling and Debtor Education Information" webpage on the U.S. Trustee Program website.
- Timing. You have 180 days before filing to complete the course. It typically lasts 60 to 90 minutes and costs $25 to $50.
3. Prepare and File Bankruptcy Forms
You'll pay the filing fee or submit a fee waiver or installment payment request when you're ready to file the petition. File the petition in the proper New Jersey federal bankruptcy court.
- Newark Division. Martin Luther King, Jr. Federal Building, 50 Walnut Street, Newark, NJ 07102
- Trenton Division. Clarkson S. Fisher U.S. Courthouse, 402 East State Street, Trenton, NJ 08608
- Camden Division. U.S. Post Office and Courthouse, 401 Market Street, Camden, NJ 08101
The fillable, downloadable official bankruptcy forms you'll complete are available on the U.S. Courts bankruptcy forms webpage. Once you file, the automatic stay—the order that stops most collection actions—goes into effect.
4. Attend the 341 Meeting of Creditors
The 341 meeting of creditors is the one meeting all filers must attend.
- The meeting usually occurs three to five weeks after filing.
- Most are held virtually, but could be in person.
- The trustee will ask questions about your case.
- Creditors can attend, but rarely do.
The court will send a notice of the bankruptcy filing that includes the trustee's name and the date of the 341 meeting of creditors hearing. (11 U.S.C. § 341.)
Tip. You'll provide the trustee with copies of bank statements, paystubs, and tax returns at least seven days before the meeting. (11 U.S.C. § 521.) Account balances should be current as of the day you file, so the trustee can verify your right to keep cash in bankruptcy.
5. Complete the Financial Management Course
You must complete a "debtor education" course after filing and submit the certificate to receive the discharge. In Chapter 7, you'll have about 60 days after the meeting of creditors. In Chapter 13, you'll file it before the last plan payment.
Tip. If the court dismisses your case because you failed to file the certificate, you'll need to repay the filing fee and submit it to receive your discharge.
6. Receive Your Debt Discharge
After completing all the required steps, you will receive your debt discharge, which will provide you with a fresh financial start. Chapter 7 filers typically receive their discharge 60 to 90 days after the meeting of creditors. Chapter 13 filers receive it after completing their repayment plan (the Chapter 13 discharge erases remaining balances on qualifying debts).
Additional Steps for Chapter 13
- Confirmation hearing. The court determines whether to "confirm" or approve your proposed repayment plan.
- Plan payments. You must complete the payment plan by making monthly payments over three to five years.
- Final forms. You'll verify up-to-date support obligations and address other issues as required by local jurisdictional requirements.
New Jersey Bankruptcy FAQs for Consumers
Here you'll find answers to common questions about New Jersey bankruptcies.
Will I lose everything I own in a New Jersey bankruptcy?
No. You can choose between the state and federal bankruptcy exemptions and many filers keep all their property.
Can I file bankruptcy again if I've filed before?
Yes, but waiting periods apply. You must wait eight years between Chapter 7 filings. The time is reduced to six years if you choose to file for Chapter 13 after filing for Chapter 7.
How much does bankruptcy cost?
You'll pay filing fees, counseling and debtor education course fees, as well as attorney costs, which vary according to the bankruptcy chapter and case complexity. A Chapter 7 case typically ranges from $1,800 to $3,500. You'll likely pay $3,500 to $5,000 for Chapter 13. Chapter 7 costs must be paid in full before filing. However, legal fees can be included in the Chapter 13 plan.
How long does bankruptcy stay on my credit report?
Chapter 7 remains on your credit report for up to 10 years. Chapter 13 stays on your credit report for seven years. However, the impact diminishes over time, and many people see credit improvement within a year or two.
How Bankruptcy Impacts Your Credit and Financial Future
Bankruptcy provides a financial reset, offering a fresh start. Most filers can work to improve their credit within a couple of years. It's even possible to qualify for a mortgage two to four years after discharge.
Rebuilding Your Credit
- Secured credit cards. Build positive payment history.
- Credit monitoring. Track your progress and dispute errors.
- Responsible borrowing. Keep credit utilization low.
Timeline for Credit Recovery
- Six months. Credit scores begin stabilizing, and you might receive credit card offers.
- One to two years. Renting an apartment and opening bank accounts should become easier.
- Two to four years. Interest rates should begin to improve. You might qualify for a mortgage.
- Seven to ten years. Bankruptcy is removed from credit reports.
When Should You Consult a New Jersey Bankruptcy Attorney?
Most people find it worthwhile to seek counsel when filing for bankruptcy because the process is complex, and the fees are relatively reasonable. However, people with simple cases are often successful in filing for bankruptcy without an attorney.
Need More Bankruptcy Help?
Did you know Nolo has made the law accessible for over fifty years? It's true—and we wholeheartedly encourage research and learning. You'll find many more helpful bankruptcy articles on Nolo's bankruptcy homepage. However, online articles and resources can't address all bankruptcy issues and aren't written with the facts of your particular case in mind. The best way to protect your assets in bankruptcy is by hiring a local bankruptcy lawyer.
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