Many people have the impression that real-life bankruptcy is like Monopoly: once you run out of cash, all your property is lost. Thankfully, the rules of bankruptcy are more forgiving. Bankruptcy laws contain many exemptions, which allow most Chapter 7 filers to keep all, or at least nearly all, of their property.

Certain types of assets of certain levels of value are exempt from liquidation in Chapter 7, which means they cannot be seized and sold to pay off your debts. In other words, you get to keep exempt property.

Exemptions are provided by federal and state law. As a bankruptcy filer in New Jersey, you will choose whether to use the federal or state exemptions. Most New Jersey filers choose the federal exemptions because they tend to be more generous than the state ones. For example, New Jersey does not offer a homestead exemption. So, if you have equity in your home that you want to protect, the federal exemptions are the only choice. Federal law allows you to exempt up to $27,900 of home equity if you are an individual and up to $55,800 if you and your spouse co-own the home.

Besides protecting your home, federal bankruptcy exemptions can help you hold onto many other types of property, including these:

• Vehicle — Using federal exemptions, you can protect up to $4,450 of equity in a vehicle. Married couples filing jointly can each use the exemption on their separate cars if needed. New Jersey law doesn’t have a motor vehicle exemption.
• Personal property — Federal exemptions allow you to keep up to $14,875 worth of household goods, clothing, animals, appliances, books and musical instruments. Federal law also protects $1,875 worth of jewelry. New Jersey allows an unlimited exemption for clothing but only $1,000 for all other types of personal property.
• Retirement accounts — Tax-advantaged retirement accounts (such as 401ks) and both traditional and Roth IRAs are exempt under federal and state law.
• Money and benefits — Federal and state exemptions each allow you to keep various types of insurance policies, health and disability benefits, military benefits, pensions and other cash-like assets.
• Wildcard exemption — Federal law allows you to exempt up to $1,475 in miscellaneous property, plus any leftover homestead exemption up to $13,950. New Jersey only allows up to $1,000 of any personal property (no real estate).

Don’t believe the myth that filing for bankruptcy will cause you to lose everything. Remember, bankruptcy is not a punishment. It is a legal tool to help people get back on their feet. Taking everything away from a debtor would defeat that purpose.

At the Law Offices of James C. Zimmermann, we will analyze your debt situation and recommend a path forward. If bankruptcy is the right choice, we’ll help you choose the most advantageous set of exemptions. Please call 973-764-1633 or contact us online to schedule a free initial consultation. We have offices in Vernon, Wayne, Pompton Lakes, Hackensack and Nutley, New Jersey.