When a bankruptcy is filed the individuals filing are allowed to protect a certain amount of equity in their assets and keep those exempt assets. In New Jersey and Pennsylvania debtors filing bankruptcy can protect assets using Federal or state exemptions. Except for certain types of assets, most bankruptcies in New Jersey or Pennsylvina rely on Federal Exemptions. Those Federal Exemptions increased as of April 1, 2019. For example, the amount of equity in your residence increased from $23,675.00 per owner to $25,150.00 per owner. Household goods and furnishing exemptions increased from $12,625 to $13,400.00. Other increases include motor vehicle from $3,775.00 to $4,000.00, jewelry from $1,600.00 to $1700.00 and proceeds from personal injury lawsuit from $23,675.00 to $25,150.00. As a result, even when filing a chapter 7 bankruptcy often the debtor will not lose any assets in the process.
When a creditor agrees to settle a claim for a reduced amount, the amount of debt foregiven can result in taxable income. For example, if you owe $20,000 on a credit card and a settlement is reached where they agree to accept $11,000 as payment in full, the creditor is foregiving $9,000.00 of the claim. In that circumstance, the creditor will issue a 1099c to you for the foregiveness of debt. That $9,000.00 will count as income to you. There are some exceptions. If you can show you are insolvent you can avoid liability. Bankruptcy is also an exception. For example, if you filed a chapter 7 to eliminate that $20,000.00 credit card, there would not be any tax liability even though the entire $20,000.00 was eliminated. Depending on circumstances debt negotiations may be an option, but be sure to take into account the tax consequences when deciding between bankruptcy and debt negotiation. And since both the IRS laws and the Bankruptcy laws are Federal Laws, the result would be the same whether you lived in New Jersey or Pennsylvania.
Let's say you have a home in Northeast Philadelphia Pennsylvania and a vacation home in Margate New Jersey or a commercial property in Cherry Hill New Jersey. Should you file in Philadelphia Pennsylvania or can you file in New Jersey as well. 28 USC section 1408 says you can file where your domicile is located or where you reside or where your principal assets are located. So the answer can be either state, depending on circumstances. While the basic bankruptcy law is the same, there are differences in how certain sections are interpreted so it makes sense to consult an experienced Bankruptcy attorney to see what is best in your particular circumstances
In order to proceed with a bankruptcy, federal, state and local tax returns that were required to be filed must be filed for the last four years in a Chapter 13 and for the last year in a Chapter 7. In other words, if you did not make enough income to file a tax return then you do not need to file that return just for the bankruptcy. If you are a Pennsylvania resident, you must file a PA tax return if you had income of more than $33.00. While this is a nominal amount, not all money received counts as income, such as social security. Pennsylvania law lists eight classes of income, including compensation, net profits from business, income from rents, dividends, interest and gambling losses among others. Consequently, if a bankruptcy is being considered, make sure tax returns are filed
The type of bankruptcy initially filed where a discharge is received is a determining factor in the number of years that must pass before a debtor can refile for bankruptcy and again receive a discharge. Whether living in towns such as Moorestown, New Jersey or Northeast Philadelphia, Pennsylvania the rules relating to obtaining a bankruptcy discharge in a second bankruptcy are the same.
Deciding to file a bankruptcy is a difficult decision for people for several reasons. First, many people hope to never have to file a bankruptcy. But it is also a difficult decision because people are not sure if they have reached the stage where it makes sense. Are there warning signs? There are. Here are some of the warning signs for when a bankruptcy should be considered. You never pay more than the minimum on credit cards or even take cash advances just to be able to meet your monthly obligations. You have depleted savings and are now withdrawing from retirement accounts. You are borrowing money from friends and relatives or resorting to payday loans. You are missing some payments and getting collection calls. Your car is about to be repossessed. You claim extra dependents and as a result you owe taxes to the state you live in such as the State of New Jersey or the Commonwealth of Pennsylvania from your tax return and have to try and get a payment plan to pay the tax. Any one of these problems are grounds to at least consult with a bankruptcy attorney to see whether it makes sense in your particular circumstances.
Whether you file a bankruptcy in Cherry Hill, NJ or Bensalem, PA or anywhere else you are required to take a Consumer Bankruptcy course not more than 180 days before filing. This can be done by telephone or online.
As a general rule, individuals filing a bankruptcy in New Jersey, Pennsylvania and other states must complete and file a "Statement of Your Current Monthly Income," referred to as the means test. Under this test, if you make more than the average family your size in your state, then limits may be imposed on your expenses which could result in you having to pay some or all of your debt back in a Chapter 13. The income limits in Pennsylvania are lower than in New Jersey. However, if you are in the military you may be exempt from this requirement.
Bankruptcy exemptions are used to protect assets when a bankruptcy is filed. For example, a Chapter 7 bankruptcy is also called a liquidation but the reality is assets are only liquidated if there is equity in the assets and the assets are not exempt. New Jersey and Pennsylvania bankruptcies rely primarily upon the federal exemptions. As of April 1, 2016 those exemptions have increased. For example if an individual files a bankruptcy and they own a home the exemption in their residence is $23,675. This is an increase from the $22,975 utilized prior to April 1, 2016. By way of example, if an individual owns a home worth $200,000 and there is a mortgage for $180,000, for bankruptcy purposes there is no equity since the equity in the home can be exempted. As a result, a Chapter 7 bankruptcy can be filed and the home would not be liquidated. Exemptions also exist for other assets. The new exemption amounts as of April 1, 2016 utilized in New Jersey and Pennsylvania for federal exemptions include $3775 for equity in a car, $12,625 for household goods and furnishings, and $1600 for jewelry. In addition to the exemptions being increased, other amounts also increased such as the maximum amount of unsecured debt in a Chapter 13 which increased from $383,175 to $394,725.