Bankruptcy exemptions protect the equity in your property from creditors and the bankruptcy court—preventing the equity from being used to pay your creditors. Equity is the value of property after you subtract the amount of any liens against the property from its fair market value.

The equity in your home is one such asset in bankruptcy. And bankruptcy exemptions—including the homestead exemption—allow you to protect the property you will need to maintain a home and employment after bankruptcy.

Bankruptcy exemption amounts vary by state, so the amount you will be able to protect will depend on where you live and the type of bankruptcy you file (Chapter 7 or Chapter 13).

In New Jersey, bankruptcy exemptions allow individuals to protect certain assets when filing for bankruptcy, ensuring they are not left destitute. The state does not have its own set of bankruptcy exemptions; instead, residents use the federal bankruptcy exemptions. These exemptions include the homestead exemption, which protects a certain amount of equity in the debtor's primary residence. As of the knowledge cutoff in 2023, the federal homestead exemption amount is $25,150, but this amount is subject to periodic adjustments for inflation. Debtors in New Jersey can also use federal nonbankruptcy exemptions alongside the federal bankruptcy exemptions if applicable. The choice of exemptions and the amount of equity protected will depend on the type of bankruptcy filed—Chapter 7 or Chapter 13. In Chapter 7, assets can be liquidated to pay creditors, while Chapter 13 involves a repayment plan. It's important for debtors to consult with an attorney to understand how exemptions apply to their specific situation and to maximize the protection of their assets.