NJ Bankruptcy Lawyer: Chapter 7 and Chapter 13 Relief for New Jersey Residents
Filing for bankruptcy in New Jersey provides immediate legal protection from creditors and a structured path to eliminate or reorganize debt. The moment a bankruptcy petition is filed with the United States Bankruptcy Court for the District of New Jersey, an automatic stay takes effect under 11 U.S.C. § 362, halting all collection actions — including lawsuits, wage garnishments, bank levies, foreclosure proceedings, and creditor phone calls. At Friscia & Associates LLC, our bankruptcy attorneys represent individuals and families in Chapter 7 and Chapter 13 proceedings, helping clients in Essex, Hudson, Union, Bergen, and Middlesex counties achieve a fresh financial start while protecting their homes, vehicles, and essential assets.
Chapter 7 Bankruptcy: Liquidation and Debt Discharge
Chapter 7 bankruptcy (11 U.S.C. § 701 et seq.) is designed for individuals who cannot repay their debts. In a Chapter 7 case, a court-appointed trustee reviews the debtor’s assets, liquidates any non-exempt property, and distributes the proceeds to creditors. In exchange, the debtor receives a discharge — a court order permanently eliminating personal liability on most unsecured debts, including credit cards, medical bills, personal loans, and deficiency balances from foreclosures or repossessions.
The Means Test (11 U.S.C. § 707(b)): Not everyone qualifies for Chapter 7. Congress enacted the means test to determine eligibility based on income. If your household income for the six months before filing is below the New Jersey median income for your household size (published by the U.S. Census Bureau and updated periodically by the U.S. Trustee’s office), you automatically qualify. If your income exceeds the median, you must pass a second calculation that deducts allowable expenses — including IRS-published standards for housing, transportation, food, and healthcare, plus actual secured debt payments — to determine whether sufficient disposable income exists to fund a Chapter 13 repayment plan. If the calculation shows you can pay a meaningful amount to unsecured creditors, Chapter 7 may be unavailable and Chapter 13 may be required.
Exempt Property Under New Jersey Law: New Jersey debtors may choose between the federal exemptions under 11 U.S.C. § 522(d) and the New Jersey state exemptions. Key New Jersey exemptions include:
- Personal property: Up to $1,000 in personal property and $1,000 in household goods under N.J.S.A. 2A:17-19
- Wages: 90% of earned but unpaid wages are exempt from garnishment for individuals earning less than 250% of the federal poverty level under N.J.S.A. 2A:17-56
- Retirement accounts: IRAs, 401(k)s, pensions, and other qualified retirement accounts are fully exempt under both federal law (11 U.S.C. § 522(b)(3)(C)) and New Jersey law (N.J.S.A. 25:2-1)
- Life insurance: Proceeds payable to a named beneficiary other than the estate are exempt under N.J.S.A. 17B:24-6
New Jersey does not provide a homestead exemption. This means that equity in your home above the federal exemption amount (currently $27,900 for an individual, $55,800 for a married couple filing jointly under 11 U.S.C. § 522(d)(1)) may be at risk in a Chapter 7 case. However, the vast majority of New Jersey Chapter 7 cases are “no-asset” cases where the trustee determines that no non-exempt property exists to liquidate. Our firm analyzes your specific asset profile to determine whether Chapter 7 is safe for your situation.
Debts That Cannot Be Discharged: Certain debts survive bankruptcy under 11 U.S.C. § 523, including: most student loans (absent proof of “undue hardship” under the Brunner test), child support and alimony obligations, most tax debts less than three years old, debts arising from fraud or willful injury, criminal restitution, and debts not listed in the bankruptcy schedules.
Chapter 13 Bankruptcy: Reorganization and Repayment
Chapter 13 bankruptcy (11 U.S.C. § 1301 et seq.) is designed for individuals with regular income who want to repay some or all of their debts over time while keeping their property. Chapter 13 is particularly valuable for homeowners facing foreclosure because it provides a mechanism to cure mortgage arrears while maintaining current payments.
How Chapter 13 Works: The debtor proposes a repayment plan lasting 3 to 5 years (the length depends on income relative to the state median). During the plan period, the debtor makes monthly payments to a Chapter 13 trustee, who distributes the funds to creditors according to the plan’s terms. At the end of the plan, remaining eligible unsecured debts are discharged.
Chapter 13 and Foreclosure: Filing Chapter 13 immediately stops a pending foreclosure through the automatic stay. The debtor’s plan can include a provision to cure the mortgage arrears — the total amount of missed payments, late fees, and foreclosure costs — over the 3-to-5-year plan period, while the debtor resumes making regular monthly mortgage payments directly to the lender. Under 11 U.S.C. § 1322(b)(5), the plan may “cure any default” on a long-term debt secured by the debtor’s principal residence. This is one of the most powerful tools available to homeowners facing foreclosure in New Jersey.
Eligibility: Chapter 13 is available to individuals (not corporations or LLCs) with regular income whose unsecured debts do not exceed $2,750,000 and whose secured debts do not exceed $2,750,000 (as adjusted by the Bankruptcy Threshold Adjustment and Technical Corrections Act). The debtor must also be current on tax filings for the four years preceding the petition.
Priority and Unsecured Creditor Treatment: The Chapter 13 plan must pay all priority claims in full — including tax debts, domestic support obligations, and administrative expenses. Unsecured creditors must receive at least as much as they would have received in a hypothetical Chapter 7 liquidation (the “best interests” test under 11 U.S.C. § 1325(a)(4)). The debtor’s disposable income for the plan period must be committed to the plan under 11 U.S.C. § 1325(b).
The Bankruptcy Filing Process in New Jersey
Step 1: Credit Counseling. Federal law requires completion of a credit counseling course from an approved agency within 180 days before filing under 11 U.S.C. § 109(h). The course can be completed online in approximately one hour.
Step 2: Preparing and Filing the Petition. The bankruptcy petition and schedules — detailed lists of all assets, debts, income, expenses, and recent financial transactions — are filed with the U.S. Bankruptcy Court for the District of New Jersey (Newark Division or Trenton Division, depending on the debtor’s county of residence). Essex, Hudson, Union, and Bergen County cases are filed in the Newark Division. The filing fee for Chapter 7 is $338; for Chapter 13, $313.
Step 3: Automatic Stay Takes Effect. The automatic stay under 11 U.S.C. § 362 takes effect immediately upon filing. All collection activity must stop. Creditors who violate the stay may be held in contempt and ordered to pay damages under 11 U.S.C. § 362(k).
Step 4: Meeting of Creditors (341 Meeting). Approximately 30 to 45 days after filing, the debtor attends a Meeting of Creditors under 11 U.S.C. § 341. The bankruptcy trustee and any creditors who choose to attend may ask questions about the debtor’s financial situation and the accuracy of the filed schedules. The meeting is typically brief (5-15 minutes) and conducted by phone or video in the District of New Jersey.
Step 5: Discharge. In Chapter 7, the discharge is typically entered approximately 60 to 90 days after the 341 meeting if no objections are filed. In Chapter 13, the discharge is entered after the debtor successfully completes all plan payments over the 3-to-5-year plan period.
Bankruptcy and Its Effect on Your Home
For New Jersey homeowners, the interaction between bankruptcy and real property is critical:
Chapter 7: Filing Chapter 7 does not save a home from foreclosure long-term. The automatic stay temporarily halts the foreclosure, but the lender can file a motion for relief from stay under 11 U.S.C. § 362(d) and resume the foreclosure. However, Chapter 7 can eliminate other debts (credit cards, medical bills) that are competing for your income, making it easier to afford your mortgage payments going forward.
Chapter 13: Chapter 13 is the primary bankruptcy tool for saving a home. As described above, the plan can cure mortgage arrears over 3-5 years while the debtor maintains current payments. The lender cannot foreclose as long as the debtor is making plan payments and staying current.
Surplus Funds: If your home has already been sold at a sheriff’s sale and surplus funds exist, those funds may become part of the bankruptcy estate under 11 U.S.C. § 541. See our surplus funds and bankruptcy page for details.
Why Choose Friscia & Associates for Bankruptcy
Our firm represents debtors in the U.S. Bankruptcy Court for the District of New Jersey, Newark Division, handling both Chapter 7 and Chapter 13 cases. We serve clients throughout Essex County (Newark, East Orange, Irvington), Hudson County (Jersey City, Hoboken), Union County (Elizabeth, Plainfield), Bergen County (Hackensack, Fort Lee), and Middlesex County (New Brunswick, Perth Amboy).
We analyze your complete financial picture — income, debts, assets, and goals — to determine which chapter provides the best outcome. For homeowners facing foreclosure, we frequently coordinate bankruptcy filings with foreclosure defense strategies to maximize protection. Every situation is different, and we provide a candid assessment of your options before you decide to file.
Contact Friscia & Associates LLC to schedule a bankruptcy consultation at our Newark office. We offer evening and weekend appointments for clients who cannot meet during business hours.