North Carolina Bankruptcy Law: An Overview of Chapter 7 and Chapter 13

Bankruptcy can be a lifeline for individuals and businesses grappling with overwhelming debt. In North Carolina, the legal landscape surrounding bankruptcy is defined by federal laws, but there are specific state considerations to keep in mind. This overview will elucidate the two primary types of bankruptcy filings individuals often consider: Chapter 7 and Chapter 13.

Chapter 7 Bankruptcy in North Carolina

Chapter 7 bankruptcy, commonly known as “liquidation bankruptcy,” is designed to allow individuals to wipe out most of their unsecured debts, such as credit card bills and medical expenses. In North Carolina, the process begins with filing a petition in bankruptcy court, along with schedules listing your assets, liabilities, income, and expenses.

One key aspect of Chapter 7 is the means test, which determines eligibility based on income levels and family size. If your income is below the state median for a household of your size, you typically qualify for Chapter 7. If it's above, the court evaluates your disposable income to see if you can repay a portion of your debts.

After filing, an automatic stay is put in place, preventing creditors from pursuing collection actions. A bankruptcy trustee is appointed to oversee the case and liquidate any non-exempt assets to repay creditors. However, North Carolina law allows filers to retain certain exempt assets, including personal property, a vehicle, and in some cases, equity in your home.

Once the process is complete, which usually takes about three to six months, most unsecured debts are discharged, giving the filer a fresh start financially.

Chapter 13 Bankruptcy in North Carolina

Chapter 13 bankruptcy, also known as a “reorganization bankruptcy,” is ideal for individuals with a regular income who wish to keep their assets while repaying a portion of their debts over time. This process allows a debtor to create a repayment plan to pay back creditors in manageable installments, typically over three to five years.

To file for Chapter 13 in North Carolina, one must also submit a petition in bankruptcy court, accompanied by a repayment plan that outlines how debts will be settled. Unlike Chapter 7, there is no means test for Chapter 13, but there are limits on the amount of secured and unsecured debts you can owe.

Chapter 13 provides significant advantages for homeowners. The automatic stay prevents foreclosure, allowing the debtor to catch up on mortgage payments while navigating the repayment plan. Additionally, Chapter 13 can result in the reduction of certain debts and interest rates, providing greater financial relief.

At the end of the payment period, any remaining unsecured debts that are eligible for discharge may be wiped out, giving the filer a financial reboot, similar to Chapter 7 but with the added benefit of asset protection.

Conclusion

Both Chapter 7 and Chapter 13 bankruptcy options in North Carolina have distinct advantages and implications. Chapter 7 is suitable for those seeking quick debt relief without intending to make payments, while Chapter 13 provides an avenue for individuals wishing to retain their assets and manage debts over a period of time. Understanding these two types of bankruptcy can empower individuals to make informed decisions that best suit their financial situation.

Consulting with a qualified bankruptcy attorney is crucial for navigating the complexities of North Carolina bankruptcy law and ensuring that your rights and interests are adequately protected throughout the process.