North Carolina Bankruptcy Laws: What Are the Laws Regarding Bankruptcies in the State of North Carolina?
When you file for bankruptcy anywhere in the United States, you are asking the courts to forgive and write off all debts as there is no chance of paying off your loans immediately or in the future. Although this is an excellent option to start afresh, it's not as simple as it sounds. In the U.S., bankruptcy laws are strictly regulated by the federal court to protect both creditors and debtors. Although the federal court controls bankruptcy laws, each state within the U.S. has a framework of its own that provides debtors more leniency.
In the U.S. state of North Carolina, nearly 1200 individuals file for bankruptcy every month. One of the major concerns among these people is the possible loss of all their property to their bankruptcy trustee and creditors. If you live in North Carolina and are worried about the consequences of filing for bankruptcy, you are in luck because the state laws protect you from losing all your property.
The laws regarding bankruptcy fall under two categories – Chapter 7 pertains to unsecured debts that are not backed up by an underlying asset, and Chapter 13 relates to secured debts that are backed up by underlying assets.
Chapter 7 of North Carolina bankruptcy law
The Chapter 7 bankruptcy law of North Carolina protects your property under the homestead exemption. Your house is protected from your bankruptcy trustee and creditors if you have up to $35,000 of equity on your property. For example, if your residence is worth $300,000 with a mortgage of $250,000, the equity of your property is $50,000. While your debts might be written off, you will not own that piece of property until you pay off the entire mortgage – failing which, the lender has the power to initiate what is known as ‘foreclosure action’. If you file for bankruptcy along with your married partner, the equity amount is doubled to $70,000.
According to the North Carolina bankruptcy laws, the same rule applies to automobiles. The law allows you to protect up to $3,500 equity in one automobile. Again, while all debts might be canceled, you will not own the automobile until it has been paid for in full.
Exemption laws in North Carolina also pertain to personal property and wages.
If all this sounds too good to be true, that is because it is. In reality, not everyone is eligible to file for bankruptcy under Chapter 7. In the 2000s, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). The act is meant to protect creditors from individuals who try to get their debts written off even when they have the means to pay off part of their debts. According to the BAPCPA, an individual is not eligible to file for bankruptcy through chapter 7 unless they earn less than the average family (of the same size) living in the state of North Carolina.
Chapter 13 of the North Carolina bankruptcy law
An individual must file for bankruptcy through Chapter 13 of the North Carolina bankruptcy law when they possess assets that can be used to pay off a part of their debts. The North Carolina Means Test is used to determine if an individual qualifies for Chapter 7 or Chapter 13 The individual, the bankruptcy trustee, and the creditors chalk out a feasible plan by which the individual can pay off his debts.
Non-dischargeable debts according to the North Carolina bankruptcy laws
Whether you file for bankruptcy through Chapter 7 or Chapter 13, there are certain nondischargeable debts that must be paid for in full. These include:
- Child support, money, and other family obligations
- Student loans
- Fines for violating the law
- Income tax and all other tax debts
- Debts for causing personal injury or death due to negligent driving and intoxication
- Debts not listed in the bankruptcy case (unless the creditors of that debt are aware of your plans to file for bankruptcy).