Chapter 7 Bankruptcy in North Carolina: What You Need to Know

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Posted On: October 26, 2013

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Bankruptcy Exemptions Chapter 7 Bankruptcy Consumer Laws by State

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Posted by: John O'Connor

North Carolina Bankruptcy Exemptions Chapter 7Last updated June 28, 2017.

Home to super-cool Asheville and the tallest mountain in the Eastern United States, North Carolina can be a fun getaway for visitors. For those who live here, residents have fallen in love with its symphony and the oldest state museum of art, its seafood and many bodies of water, and its history as the largest producer of furniture and textile in the country.

North Carolina, although it ranks in the bottom third in terms of per capita income in the nation, has had the fastest-growing economy and one of the fastest-growing populations as a state since 2013. Still, some residents find themselves in trouble with debt, with more than 1,200 people filing for bankruptcy each month (according to May 2017 statistics from the Middle District, Eastern District, and Western District).

So, you’re getting ready to file for bankruptcy in North Carolina and find yourself looking online for answers. Time to panic? Absolutely not. It’s time to learn the law and explore your options. We’ll start at the beginning, with the biggest misconception that North Carolinians, and consumers in general, have about filing for Chapter 7 bankruptcy: that you will lose all of your property. The myth that filing for bankruptcy means you lose all of your property is just that, a myth. In the vast majority of cases, consumers who elect to file for bankruptcy end up keeping all of the property they own because of exemption laws.

North Carolina Bankruptcy Exemptions: Will I lose my property?

Each state, as well as the federal government, has enacted certain laws that allow debtors to protect property from creditors and, when a bankruptcy case is filed, from the trustee. The State of North Carolina is no exception, although it’s one of a handful of states that allows debtors to only claim state exemptions and not choose from the list of federal exemptions.

Under the North Carolina homestead exemption, debtors can protect up to $35,000 of equity in their primary residence. If you are married and filing a joint case with your spouse, you can double the exemption to protect $70,000 of equity in your home.

How exactly does the homestead exemption work? It applies to equity.

For example, if you own a home worth $200,000 with a mortgage of $150,000, you have $50,000 of equity accumulated in your home. If you file a joint Chapter 7 case in North Carolina, your home would be entirely off-limits to the bankruptcy trustee because all of your equity is exempt. In the scenario above, you could file for Chapter 7, discharge all of your debts, and keep your family home. It is important to keep in mind however, that filing for bankruptcy does not give you a free home. In order to retain ownership of your home after you file for bankruptcy, you will still need to pay the mortgage as you have in the past. Failure to do so can result in your lender initiating a foreclosure action.

In addition to the state homestead exemption, North Carolina bankruptcy law also offers protection for automobiles. North Carolina Chapter 7 debtors can protect up to $3,500 of equity in their cars. The auto exemption laws work in similar fashion to the homestead exemption, in that they protect equity, not overall value of the car.

See also: How the North Carolina Foreclosure Process Works

North Carolina Bankruptcy Exemptions

The top 5 exemptions under North Carolina state law.
Type of exemptionNorth Carolina law
Homestead$35,000; $60,000 if age 65 or older, tenants or joint tenants as rights of survivorship, and debtor's spouse has died
Personal property$5,000 in clothing, plus an additional $1,000 per dependent for a total of $4,000 (minus property purchased within 90 days of filing bankruptcy); college savings accounts up to $25,000, with limitations; $2,000 in tools of the trade; personal injury and wrongful death compensation;
Vehicle$3,500 in one vehicle, but not if purchased within 90 days of filing bankruptcy
WagesEarned but unpaid for work done 60 days before the filing date
Pension/retirementMost are exempt under federal/state law

NC Bankruptcy Means Test: Do I qualify for Chapter 7?

OK, now that I’ve eased your concerns about losing every piece of property that you own to the trustee, let’s talk about bankruptcy reform and how it may have impacted your ability to qualify for Chapter 7. In 2005, Congress passed a piece of legislation known as the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). Among other things, this “new” law made it more difficult to file for Chapter 7 bankruptcy by implementing the bankruptcy means test. The means test is designed to steer consumers, who have the disposable income to pay something back to their unsecured creditors, into the Chapter 13 process rather than allowing them to shed all of their unsecured debt through Chapter 7.

When does the means test come into play? If you make more money than the average family of your size in the state of North Carolina, your last six months of income as well as your expenses will be run through the means test. Not all of your actual expenses will be used. Some will be based on average local expenses as determined by your friends at the IRS.

This information changes a few times a year. For example, if you filed for bankruptcy on or after May 1, 2017, the median family income data for North Carolina is as follows:

  • 1 earner: $42,946
  • 2-person family size: $55,722
  • 3-person family size: $64,521
  • 4-person family size: $72,830

If you have “too much” disposable income left over after expenses, there will be a presumption that you belong in Chapter 13 bankruptcy, rather than Chapter 7. Conversely, If you have very little income left over after expenses, you will presumptively qualify to file for Chapter 7 bankruptcy. If you earn less money than the average family of your size in North Carolina, you automatically qualify to file for Chapter 7 and the means test does not come into play at all. If this all sounds a bit complicated, it is. But the bottom line is this: if you make less money than the average family of your size, you automatically qualify to file for Chapter 7 bankruptcy.

If you have additional questions, contact a lawyer. Most bankruptcy firms will be happy to crunch the numbers for you to see whether you qualify to file Chapter 7.

How much does it cost to file Chapter 7 bankruptcy in North Carolina?

The average cost to hire a bankruptcy lawyer will vary, sometimes greatly, by jurisdiction. Filing bankruptcy in rural Texas won’t cost as much as filing in Chicago. Fees can be unpredictable, and the cheapest attorney isn’t always the best attorney.

Having said that, the average fee for a Chapter 7 bankruptcy case in Charlotte, North Carolina, is about $1,500. I know because I’ve filed quite a few of them myself, and that was what I charged clients when I practiced bankruptcy law there. The $1,500 lawyer fee does not include the cost of filing the case, which is uniform nationwide, and costs an additional $335 for Chapter 7.

Some firms will charge more than $1,500, some may charge less, but the average is right around $1,500 to get competent representation from a good lawyer. In case you’re wondering, the cost for Chapter 13 bankruptcy in Charlotte is $3,250 plus a filing fee of $274. The Chapter 13 fee is set by the court. In some cases, Chapter 13 bankruptcy is an attractive option for consumers because law firms are willing to file cases with little to no money down and receive their fees as part of the Chapter 13 payment plan.

See also: Bankruptcy Attorneys in North Carolina

North Carolina Bankruptcy Courts: How to File Bankruptcy

It is very unlikely that you’ll have to go to court as a result of filing for bankruptcy. Many bankruptcy law firms refer to the 341 meeting of creditors as “going to court.” What they’re really referring to is a meeting presided over by your trustee to ask you a few simple questions about your case. For most people, the process is fairly painless. Where will your meeting of creditors be held? The location will be determined by where in North Carolina you file your bankruptcy case.

North Carolina bankruptcy attorney Erich Fabricius wrote an excellent post on the various locations of the NC bankruptcy courts. According to Erich:

Compared to the districts, the consequence of a case being in a particular division are not as significant. Nevertheless, a divisional assignment might influence what bankruptcy judge and trustee are assigned to a case, and will impact where and when the creditor’s meeting and court hearings will be. Unlike the districts, which are set by federal statute and are unlikely to change, the divisions change from time-to-time as the needs of district and personnel change.

There are three federal districts in North Carolina: the Western, Middle and Eastern districts. Within each district are divisional courthouses where 341 meetings are held. Here are the court locations and contact information:

Eastern District of North Carolina

Raleigh Division: 300 Fayetteville St., 4th Floor, Raleigh, NC 27601-1799, 919-856-4752

Greenville: 150 Reade Circle, Greenville, NC 27858, 919-856-4752

Middle District of North Carolina

Greensboro: 101 S. Edgeworth St., Greensboro, NC 27401, 336-358-4000

Winston-Salem: 226 S. Liberty St., Winston-Salem, NC 27101, 336-397-7785

Durham: Venable Center, Dibrell Building – Suite 280, 302 East Pettigrew St., Durham, NC 27701, unstaffed

Western District of North Carolina

Charlotte: 401 W. Trade St., Room 111, Charlotte, NC 28202, 704-350-7500

Asheville: 100 Otis St., Room 112, Asheville, NC 28801-2611, 828-771-7300

Statesville: 200 W. Broad St., Room 301, Statesville, NC 28677, 704-871-4280

Shelby: 100 Justice Place, Shelby, NC 28150, unstaffed