N.J. Stat. Ann. § 46:8-1 et seq. § 46:8-23
Statutory trust upon insolvency or bankruptcy of person receiving security deposit
Operative Text
In the event of the insolvency or bankruptcy of the person receiving the said moneys, the claim of the person who paid the said moneys shall constitute a statutory trust with respect to any moneys so received and not previously expended in accordance with the terms of the contract, lease or agreement. L.1967, c. 265, s. 5, eff. Jan. 1, 1968.
Under N.J.S.A. 46:8-1 et seq. § 46:8-23, when a landlord or other party holding a security deposit becomes insolvent or files for bankruptcy, the deposited funds that have not already been lawfully spent are treated as a statutory trust in favor of the person who paid them. This legal designation means the money is not simply absorbed into the bankrupt party's general assets but instead retains a protected status tied to the original depositor's claim. The provision was enacted to give security deposit payers a recognized priority interest in those funds during insolvency proceedings.
Plain English — not legal advice.
Property owners and managers subject to N.J.S.A. 46:8-1 et seq. § 46:8-23 should be aware that security deposit funds they hold are not treated as ordinary business assets if insolvency or bankruptcy occurs. Compliant operators generally keep security deposits in properly designated, segregated accounts so that the funds remain identifiable and traceable as trust property. Maintaining clear records of deposit balances and any lawful disbursements helps demonstrate that funds were handled in accordance with the underlying lease agreement.
General guidance for property managers — not legal advice for your specific situation. Consult an attorney for advice on your case.
N.J.S.A. 46:8-1 et seq. § 46:8-23 gives tenants who have paid a security deposit a statutory trust claim over those funds if the person holding them becomes insolvent or enters bankruptcy. This means a tenant's claim to the unspent deposit is not simply treated as an unsecured debt lost in bankruptcy proceedings, but instead carries a recognized trust status. Tenants in this situation may wish to consult a tenant-rights organization or legal aid office to understand how to assert a trust claim in the relevant insolvency or bankruptcy proceeding.
General guidance for tenants — not legal advice for your specific situation. Consult a tenant-rights organization or attorney for advice on your case.
Generated October 6, 2026 — auto-generated, not yet human-reviewed. See /transparency for methodology.
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