How to File for Chapter 7 Bankruptcy

Individuals or couples who face overwhelming debt can turn to the protections of the federal bankruptcy code to gain a fresh start in life. Bankruptcy is an often-misunderstood legal option that people find deceiving. They fear that they’ll lose everything, and that at the end of the process, they’ll be left with no credit and no chance to re-establish it. That is false – bankruptcy is a great option for financial relief and happens to be extremely beneficial. 

Under the bankruptcy code, there are basically two options for individuals and couples. One option is to reorganize your debts and pay them off with your “disposable” income over three to five years. This is called a Chapter 13 bankruptcy filing.  

Many people turn to the other option, which is a Chapter 7 filing. Chapter 7 is the liquidation plan. It’s generally over in a few months, but liquidation means that the bankruptcy trustee assigned to your case might sell off some of your non-exempt assets to pay creditors. 

Bankruptcy filings across the nation are on the rise from 2022. The American Bankruptcy Institute (ABI), which tracks filings, reports that the number of individuals filing for bankruptcy increased 16 percent year over year to a total 33,755 in July 2023. More current ABI statistics show that nationwide, during the week of October 9 to 13, 2023, there were 4,903 Chapter 7 filings, up 29.9 percent from the same period in 2022. 

If your debts are overwhelming you, bill collectors are contacting you almost daily, and you’re missing or juggling payments due, contact me at the Law Office of Victor Druziako, P.C., for knowledgeable legal assistance. 

I am an experienced bankruptcy attorney who will review your financial situation with you and guide you through a Chapter 7 fresh start, so you can rebuild your credit and your life. I will stand with you the whole time explaining every step of the process and what to expect. I proudly serve clients in Vineland, and the South New Jersey area. 

Understanding Chapter 7 Bankruptcy in New Jersey

To qualify for a Chapter 7 bankruptcy filing – this is the quickest option but involves the possibility of some property being sold off to pay creditors – you must first pass what is called a “means test.” The means test refers to a calculation of your income over the six months preceding your filing.  

Every source of income over the half-year should be added together and then divided by six to get a monthly figure. If that monthly sum is $7,475 or less, then you qualify for Chapter 7. If it is above $12,475, then you cannot file for Chapter 7. Any sum between those two figures is kind of a gray area. You may qualify and you may not. This is something I can help you with if you fall in that area income-wise. 

Exemptions: State or Federal

The federal bankruptcy code and the state’s corollary statutes offer exemptions for equity in property you own. First, however, it should be noted that many assets are automatically protected. These include most retirement accounts, including 401(K)s, 403(b)s, profit-sharing and money purchase plans, SEP and SIMPLE IRAs, defined benefit plans, and traditional and Roth IRAs up to $1,512,350 per person (for cases filed between April 1, 2022, and March 31, 2025). Public benefits, unemployment insurance, and workers’ compensation are also exempt under New Jersey statutes. 

Now, when it comes to personal property such as a car or a home, you can choose between federal and state exemptions. Unfortunately, New Jersey does not offer a homestead exemption for equity in one’s home, so to protect the value you’ve built up in your home, you should use the federal exemption of $27,900, which can be doubled if both spouses file for bankruptcy.  

The same holds true for a vehicle. You can get a federal exemption of up to $4,450. There is also a federal “wildcard” exemption of up to $13,950 that can be used for a car, or for anything else for that matter. I will counsel and work with you on using exemptions to protect your assets. 

What to Expect After You File for Bankruptcy

The first benefit you receive after filing for bankruptcy is what’s called an “automatic stay.” This means that creditors and bill collectors must cease contacting you and trying to collect on their debts. In the case of secured loans, for property such as cars and real estate, the lender can petition to have the stay removed, but if you are behind on your payments, you can use the period when the stay is in effect to try to work out a loan modification. 

Also, you will have a bankruptcy trustee assigned to your case, and there will be a meeting of creditors that you must attend. Sometimes these meetings can be rather routine and perfunctory in the matter of a Chapter 7 filing since you will not be reorganizing your debts. The trustee will then determine which, if any, of your assets will be subject to liquidation. 

Ask an Attorney for Help

Depending on the assets you possess, a Chapter 7 filing can be pretty straightforward or rather complicated. You should work with an experienced bankruptcy attorney to explore all your exemptions and how best to apply them. 

Contact my firm, the Law Office of Victor Druziako, P.C., to start the process if you’re in South Jersey. I will work one-on-one with you and communicate in a clear, easy-to-understand way. Let’s work together toward your fresh financial start.