Bankruptcy FAQs
- What do I need to do to begin the bankruptcy process?
- How will I know that declaring bankruptcy is right for me?
- If I file Chapter 13, what are my creditors' rights and responsibilities?
- What debts does bankruptcy not cover?
- When does filing Chapter 7 make sense?
- Which bankruptcy option wipes the slate clean?
- When does filing Chapter 13 make sense?
- What property is exempt?
- What happens to my home during bankruptcy proceedings? I do not want to lose my home.
What do I need to do to begin the bankruptcy process?
Your first step is to inventory your past and present debts. You will also need a list of your assets to include in your petition in the bankruptcy filing. Schedules of assets and liabilities, along with a statement of your financial affairs, comprise the petition you will file with the bankruptcy court, accompanied by your filing fee.
How will I know that declaring bankruptcy is right for me?
An attorney experienced in bankruptcy law can help you determine the options that best suit your particular situation. Filing for Chapter 7 relieves most of your debt, but not all. Filing Chapter 13 pays off your debts with a structured repayment plan. For businesses, corporations and partnerships can file for Chapter 7. Individuals who own sole proprietorships can file Chapter 13. Both individuals and other corporate entities can file Chapter 11 that repays creditors through a court-approved plan of reorganization.
If I file Chapter 13, what are my creditors’ rights and responsibilities?
When you file, you must include your proposed plan to pay all priority claims against you, including taxes, in full. Once your plan is approved, you make monthly payments to a bankruptcy trustee, who then distributes the funds to your creditors according to your plan.
What debts does bankruptcy not cover?
Bankruptcy cannot relieve you of all debts. The following are the most frequent debts that are non-dischargeable:
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When does filing Chapter 7 make sense?
When the following conditions exist, filing Chapter 7 may be your best bankruptcy option:
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Which bankruptcy option wipes the slate clean?
Chapter 7 comes the closest to giving you a fresh start, although it does not discharge all your debts. Some debts you will still have to pay. But with Chapter 7, an appointed trustee takes your nonexempt assets and liquidates or sells the non-exempt assets to pay your creditors. You may have a cleaner slate, but that does not mean you can walk away from all your debt scot-free and without some pain.
When does filing Chapter 13 make sense?
Chapter 13 could be your best bankruptcy option, especially if you—
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What property is exempt?
Exempt property is simply property that you can keep and protect from your creditors when you file Chapter 7 bankruptcy. For debtors who have been domiciled in North Carolina for 2+ years the exemptions PER PERSON are as follows:
1. Residence
You may exempt up to $35,000 total equity in your residence, including a mobile home and burial plots. If you and your husband or wife own the property jointly and file a joint petition, you can claim $70,000 as exempt. Furthermore, an unmarried debtor who is age 65 or older is entitled to retain an aggregate interest in the property not to exceed $60,000 in value, so long as the property was previously co-owned by the debtor as a tenant by the entireties or as a joint tenant with rights of survivorship and the former co-owner of the property is deceased. "Equity" is the value of the property less all debts or liens secured by it. In certain circumstances you may be able to exempt the entire value in a residence if you own it jointly with your spouse and have no joint creditors. See paragraph 14 below.
2. Motor Vehicle
You can claim up to $3,500 in equity in one motor vehicle.
3. Household Goods
You can claim exemptions of up to $5,000 for yourself, plus $1,000 for each dependent (not to exceed 4), in items such as household furniture, clothes, jewelry, etc. You value these items at a price at which you can sell them, not at their original cost or replacement value.
4. Tools of Trade
You can exempt $2,000 of equity in "tools of the trade."
5. Wild Card
A wildcard exemption is available to exempt any property. The amount of the wildcard exemption is effected by the amount, if any, you claim under the $35,000 residence exemption. The wildcard exemption is $5,000 and is claimed out of the unused portion of the residence exemption. For example, if the exemption you claim in a residence is less than $30,000 you have a $5,000 wildcard exemption. If you claim $32,500 exemption in your residence, you have a $2,500 wildcard exemption. This exemption is usually used to claim as exempt equity in a car above $3,500, money in the bank, tax refunds not yet received, and cash on hand.
6. Life Insurance
Life insurance policies insuring the life of the debtor in which his or her spouse and/or children are named beneficiaries are totally exempt.
7. Health Aids
You can claim an unlimited amount of professionally prescribed health aids for the debtor or a dependent of the debtor (e.g., wheel chair, hearing aid and the like).
8. Compensation for Injuries
Compensation for personal injuries and workman's compensation is exempt.
9. College Savings Accounts
Funds in a college savings plan qualified under §529 of the Internal Revenue Code, not exceed $25,000, and only to the extent the funds are for a child of the debtor and will actually be used for the child’s college expenses. You may not exempt the funds placed in the savings plan within the year prior to filing unless they were regular contributions consistent with past pattern of contributions.
10. Retirement Benefits
There are no dollar limits here. IRA accounts. Retirement benefits of North Carolina Teachers, State Employees, Local Government Employees, and Federal Civil Service Employees are exempt. Individual retirement accounts are exempt. Retirement benefits of other states or governmental unit of other states are exempt to the extent that they are exempt under the laws of that state. Your interest in an ERISA qualified retirement plan (401-K account, pension or profit sharing plan) is also protected from your creditors.
11. Government Benefits
Veterans Administration, Social Security and AFDC benefits are exempt.
12. Wages
Your earnings for personal services rendered within 60 days of filing the bankruptcy which are necessary for the support of you and your family such earnings remain exempt even though, they have been deposited in a bank account.
13. Alimony and Child Support
Alimony, support, separate maintenance and child support payments to the extent they are reasonably necessary for the support of the debtor or a dependant of the debtor.
14. Tenants By The Entirety
Any real estate (not just a residence) owned by a husband and wife jointly, is exempt from any creditor who has a claim against just the husband or wife. It is not exempt from a creditor who has a joint claim against both the husband and wife. If you own real estate jointly with your spouse with a large amount of equity, it may be crucial to know what joint debts you have with your spouse.
15. Other
Other specific benefits and property are exempt.
What happens to my home during bankruptcy proceedings? I do not want to lose my home.
Most people who file bankruptcy keep their homes. In fact, many people file bankruptcy to keep from losing their home, and the decision on whether to file Chapter 7 or Chapter 13 reveals the best way to keep the home.
In Chapter 7, you keep your home so long as you remain current with the payments on the mortgage(s), and the amount of equity is no more than the exemption amount (See question on exemption amounts).
If you are not current with your payments or if the amount of equity exceeds the exemption amount, you file Chapter 13 to resume making regular payments, catch up payments, and pay the non-exempt equity of your other creditors over the term of the Chapter 13 plan.
