• New Jersey Chapter 7 debtors would do well to claim federal exemptions.Jewelry image by Sergey Yakovenko from Fotolia.com
  
  The state of New Jersey allows its bankruptcy debtors to choose between state and federal exemptions, which few other states do. This option benefits New Jersey debtors who file for Chapter 7 bankruptcy because state has limited exemptions. The federal exemptions allow New Jersey debtors to keep more property than the state exemptions would.
  
  

Means Test

• A debtor must pass a means test in order to file for Chapter 7 bankruptcy. The debtor's family income is compared with the median family income for a family of the same size in the state of New Jersey. If the debtor’s family income is less than the state median family income, the debtor passes the means test and can file for Chapter 7 bankruptcy. (See Reference 1)
  
  In 2010, New Jersey median incomes were listed as: $59,812 for a single earner; $71,744 for a family of two; $85,764 for a family of three; and $102,894 for a family of four. The debtor should add $7,500 for each family member in excess of four. (See Reference 2)
  
  If the debtor does not pass the means test that way, he may pass in either of two other ways. First, the debtor must calculate his monthly disposable income by deducting his allowed monthly expenses. If the debtor’s monthly disposable income is less than $100, the debtor passes the means test. If the debtor’s monthly disposable income is more than $100 but would not be enough to pay at least 25 percent of his debts over the next five years, the debtor passes the means test and can file for Chapter 7. If the debtor fails all methods of the means test, he may need to convert to a Chapter 13 case, in which he will spend the next three to five years repaying his creditors. (See Reference 1)
  
  

Exempt Property

• A debtor who qualifies for Chapter 7 bankruptcy will need to surrender his property to a trustee, and the trustee will sell the property to pay the debtor’s creditors. All property of the debtor cannot be sold, however. The Bankruptcy Code allows debtors to keep certain exempt property, and as mentioned above, New Jersey allows its debtors to claim either state or federal exemptions. (See Reference 3)
  
  

State and Federal Exemptions

• New Jersey state exemptions are listed as: goods and chattel; shares of stock or interests in any corporation; personal property of every kind up to $1000; household goods and clothing up to $1,000; disability benefits, health insurance policies, worker's compensation benefits; and retirement benefits. (See Reference 3)
  
  Compare those to the federal exemptions: homestead up to $18,450; life insurance payments; life insurance policy with loan value up to $9,850; unmatured life insurance contract; alimony and child support; pensions and retirement benefits; household goods up to $9,850, up to $475 per item; health aids; jewelry up to $1,225; lost earnings payments; motor vehicle up to $2,950; personal injury compensation up to $18,450; wrongful death payments; crime victim’s compensation; public assistance; Social Security; unemployment compensation; veteran's benefits; tools of the debtor’s trade; and a wildcard of $925 and the unused portion of the homestead allowance. (See Reference 3)