Filing Individual Bankruptcy in North Carolina
For individuals, the most common types of bankruptcy are Chapter 7 and Chapter 13.
Chapter 7 - Straight Bankruptcy
In a Chapter 7 bankruptcy case, you file a petition asking the court to discharge your debts. The basic idea in a Chapter 7 bankruptcy is to wipe out (discharge) your debts in exchange for your giving up property, except for "exempt" property which the law allows you to keep. In most cases, all of your property will be exempt. But property which is not exempt is sold, with the money distributed to creditors.
If you want to keep property like a home or a car and are behind on the payments on a mortgage or car loan, a Chapter 7 case may not be the right choice for you. That is because Chapter 7 bankruptcy does not eliminate the right of mortgage holders or car loan creditors to take your property to cover your debts.
The Means Test
In order to qualify for Chapter 7, you also have to pass a "means test." The "means test" is calculated by calculating your average gross (before taxes) income for the six months preceding the month in which you want to file, and deducting from that number certain payments on secured debts, and deducting income taxes, certain living expenses, and other deductions defined and allowed by the federal bankruptcy laws. The "means test" is complicated, and often does not make any sense. You will need to gather your paycheck stubs, for the six months preceding the month in which you want to file, so that your attorney may calculate whether you will pass the "means test."
In a Chapter 7 case, you can keep all property which the law says is "exempt" from the claims of creditors. If you have been a North Carolina resident for the past two years, you may exempt:
- Up to $35,000 in equity in your home or mobile home
- Up to $3,500 in equity in your car
- Up to $5,000 in value in household goods, plus addition amounts for children who live at home
- Up to $2,000 in things you need for your job (tools, books, etc.)
- Your right to receive certain benefits, such as Social Security, unemployment compensation, veteran benefits, public assistance, and pensions - regardless of the amount
- Any amount in an IRA or ERISA-qualified retirement plan (401K, 403B, etc.)
- Personal injury compensation
- Up to $25,000 in a 529 college savings plan, with certain limitations
- If you do not have $35,000 in equity in your home or mobile home, then in some circumstances up to $5,000 forth of anything else that is not otherwise exempt
- Money in your bank account traceable to wages earned in the last 60 days, if you have a dependent family member (i.e., children or a dependent spouse)
- The amounts of the exemptions are doubled when a married couple files together
In determining whether property is exempt, you must keep a few things in mind. The value of property is not the amount you paid for it, but what it is worth now to replace it in its current condition. Especially for furniture, this may be less than what you paid for it new. For cars, the court uses a fairly rigid test based upon the NADA average retail value.
In calculating your exemption, you are looking at your equity in the property. This means that you count your exemptions against the full value minus any money that you owe on mortgages or liens. For example, if you own a $50,000 house with a $40,000 mortgage, you count your exemptions against the $10,000, which is your equity.
While your exemptions allow you to keep property in a Chapter 7 case, your exemptions do not make a difference to the right of a mortgage holder or car loan creditor to take the property to cover the debt if you are behind.
If you have not lived in North Carolina for the past two years, then you need to discuss with your attorney the states in which you have lived, so that your attorney can help you to determine which exemptions are available - they may be the exemptions of the state where you used to live, or they might be a set of federal exemptions.
Chapter 13 - Wage Earner Bankruptcy
In a Chapter 13 case, you file a "plan" showing how you will pay off some of your past-due and current debts over three to five years. The most important thing about a Chapter 13 case is that it will allow you to keep valuable property - especially your home and car - which might otherwise be lost, if you can make the payments which the bankruptcy law requires to be made to your creditors. You should consider filing a Chapter 13 plan if you -
- Earn too much income to qualify for Chapter 7, after your attorney runs the "means test"
- Own your home and are in danger of losing it to foreclosure due to missed payments
- Are behind on debt payments, but can catch up if given time
- Have valuable property, which is not exempt, but you can afford to pay creditors from your income over time
You will need to have enough income in Chapter 13 to pay for your necessities and to keep up with the required payments as they come due. In other words, the bankruptcy court judge has to find that the plan is "feasible." In a Chapter 13 case, you can keep all of your property if your plan meets the requirements of the bankruptcy law. In Chapter 13 cases filed after July 1, 2009, you will also make your future mortgage payments through your plan payments to the Chapter 13 Trustee's Office.
It is also important to note that you cannot "re-write" the interest rate on a mortgage if you file Chapter 13.
Debtors can rely on the deep experience and proven results of Charlotte, North Carolina's debtor-creditor law firm, G. Martin Hunter. Contact me today. Your rights deserve to be upheld.