Although it doesn't happen usually overnight, a person can wake up and realize that he or she is too far in debt to be able to financially recover without help. While many consumers rush to file for Chapter 7 bankruptcy after realizing the truth of their financial situations, some New Jersey residents try to avoid bankruptcy because they fear that they will lose all of their possessions by filing. However, that is not the case. There are certain assets that are considered exempt from the liquidation process.
According to the U.S. Bankruptcy Code, there are items that are considered exempt and there are items that are considered non-exempt. Items that are exempt are those that are considered to be basic necessities that a person needs to be able to live and work, such as a car, clothing and household appliances. Items that are non-exempt are those that are unnecessary for working and everyday life. Examples of non-exempt items include second homes and multiple vehicles, art collections and investments.
When one files a Chapter 7 bankruptcy in the state of New Jersey, his or her estate is taken over by a bankruptcy trustee. The trustee will then divide the debtor's assets into exempt and non-exempt items. The non-exempt items will be sold off to pay back the person's debts. The exempt items will be excluded from the sale.
Once debtors understand the difference between exempt and non-exempt assets, they can better decide if Chapter 7 bankruptcy is the right choice for their financial situation. Many New Jersey residents who take the time to learn about their options choose Chapter 7 every year. After the bankruptcy process is over, and their debts have been discharged, they also may find the financial freedom they were seeking.
Source: FindLaw, "Exempt vs. Non-exempt Property Under Chapter 7", Nov. 2, 2014