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Can you keep your home during New Jersey Chapter 7 bankruptcy?

There are many myths and lots of misinformation floating around about bankruptcy, especially Chapter 7 bankruptcy. People with significant credit card debt, medical debt or collection activity could benefit from bankruptcy relief and protections. However, believing inaccurate information about the process and its protections could be holding some people back.

One common fear is that filing bankruptcy means losing your home. Worse, having a note on your credit report for a full ten years after your discharge can prevent you from securing a new mortgage and buying a home shortly after bankruptcy. Usually, it takes at least a few years after discharge before lenders will consider you for a mortgage again. The good news is that, in many cases, at least part of your home has protection under federal and New Jersey state bankruptcy laws.

New Jersey does not offer a state homestead exemption

Many states set their own amounts for homestead exemptions. This exemption allows people to protect some of their investment in their home or primary residence from liquidation. The courts will typically sell or seize assets above a certain value to repay creditors in Chapter 7 bankruptcy. This can include your home or the equity you've built in the property.

It's important to realize that just because New Jersey doesn't have a state homestead exemption doesn't mean you automatically lose your home or any equity you've accrued in the property. You have the right to use state exemptions or federal exemptions. For those with some equity in a home, choosing the federal exemption could be the best choice.

How much equity does the federal exemption protect?

Every few years, the federal exemption amount gets updated. The next update will occur in 2019. Single people filing bankruptcy in 2018 can exempt up to $23,675 in equity. If a married couple is filing bankruptcy together, they can double the amount of the exemption for home equity.

It is common for people considering bankruptcy to have more equity in their home than the exemption protects. For these people, the courts will likely order refinancing of the property. Excess equity will go toward repaying creditors. After the completion of that process, the person or couple filing bankruptcy will then have most of their unsecured debts discharged.

Is Chapter 7 right for you?

If your income is low enough to pass the state means test and you don't have a lot of other valuable assets, Chapter 7 bankruptcy may be the best way to secure a financial fresh start. For those who have a lot of equity in their homes or higher income, Chapter 13 bankruptcy may be the better option.

There is no simple answer when determining if bankruptcy is right for your situation. You should familiarize yourself with state laws and make an informed decision about what will work for you.

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