Although the state of North Carolina has bankruptcy courts, bankruptcy is actually a federal procedure, not a state one. That means that filing procedures for North Carolina bankruptcy are based on federal laws that are very similar to the filing procedures in the other 49 states.
However, since some provisions vary, such as the lists of property that is exempt from sale in foreclosure, it is important to understand the state's laws as well.
Learning About the Bankruptcy Process
Anyone living in North Carolina who is considering filing for bankruptcy needs to learn both about general federal bankruptcy procedures and their state's laws about bankruptcy. Filing for bankruptcy gives a debtor a fresh start, but it is not something to be taken lightly since it can have a lasting impact on finances and credit.
Bankruptcy is a complicated legal matter, so most experts recommend bringing in a bankruptcy attorney or law firm to assist with a bankruptcy court filing in North Carolina.
How Bankruptcy Works in North Carolina
Bankruptcy is a legal proceeding that assists a debtor who is overwhelmed by their debts. But the devil is in the details, as is often the case with legal proceedings. That's why it is important for any North Carolina resident considering a bankruptcy filing to read up on bankruptcy basics in this state.
All bankruptcy cases are filed in federal courts. State courts – in North Carolina as in every other state – lack the authority to hear these cases. That means that the rules and procedures are those set out in the federal codes. However, state laws do influence some aspects of a bankruptcy filing, notably providing lists of exempt property.
A number of types of bankruptcy cases are available in North Carolina, and each is identified by the chapter number in the U.S. Bankruptcy Code where it is described. For example, the two most common types of bankruptcy filed in North Carolina are Chapter 7 and Chapter 13. These are described respectively in Chapter 7 and Chapter 13 of the U.S. Bankruptcy Code.
Bankruptcy Courts in North Carolina
State courts in North Carolina include: the State Supreme Court, courts of appeals, superior courts, district courts, trial courts, business courts and small claims courts. Bankruptcy courts are not among them. Bankruptcy cases are federal proceedings, so a bankruptcy case must be filed in the U.S. Bankruptcy Court, a federal court.
The federal court system is divided into districts, with every state having at least one district. North Carolina has three districts, and each has several courthouses. Here is a summary of the federal court districts and the North Carolina counties they serve:
Beaufort, Bertie, Bladen, Brunswick, Camden, Chowan, Columbus, Cumberland, Currituck, Carteret, Craven, Dare, Duplin, Edgecombe, Franklin, Gates, Granville, Greene, HalifaxHarnett, Hertford, Hyde, Johnston, Jones, Lenoir, Martin, Nash, New Hanover, Northampton, Onslow, Pasquotank, Pamlico, Pender, Perquimans, Pitt, Robeson, Sampson, Tyrrell, Washington, Vance, Wake, Warren, Wayne, and Wilson
Alamance, Cabarrus, Caswell, Chatham, Davidson, Davie, Durham, Forsyth, Guilford, Hoke, Lee, Montgomery, Moore, Orange, Person, Randolph, Richmond, Rockingham, Rowan, Scotland, Stanly, Stokes, Surry, and Yadkin
Alexander, Alleghany, Anson, Ashe, Avery, Buncombe, Burke, Caldwell, Catawba, Cherokee, Clay, Cleveland, Gaston, Graham, Haywood, Henderson, Iredell, Jackson, Lincoln, McDowell, Macon, Madison, Mecklenburg, Mitchell, Polk, Rutherford, Swain, Transylvania, Union, Watauga, Wilkes, and Yancey
Qualifying for Bankruptcy in North Carolina
Struggling debtors are not all one size and shape so there are different types of bankruptcy to accommodate them in North Carolina. The factors that determine eligibility are different for each type of bankruptcy.
The two most common types of bankruptcy for individuals in North Carolina are Chapter 7 and Chapter 13. These are very different legal proceedings with different intentions and outcomes. Each fits a particular type of debtor issue. They also have distinctly divergent eligibility requirements.
Qualifying for Chapter 7 in North Carolina
Chapter 7 is the most common and fastest type of individual bankruptcy filing. The procedure can go from filing the case to discharge in six weeks. Chapter 7 is often used to clear a consumer's medical and/or credit card debt.
Termed “liquidation bankruptcy,” this type of bankruptcy involves gathering and selling all of the debtor's assets other than those designated as exempt under applicable law. The bankruptcy trustee uses the resulting proceeds to pay creditors. Once real and personal property assets are sold and the proceeds distributed, much of the remaining debt is eliminated as part of the bankruptcy discharge.
Some debts, like certain student loans, back taxes, alimony, personal injury judgments based on abuse of alcohol or drugs, and back child support payments are not dischargeable in bankruptcy and remain with the debtor.
Eligibility for Chapter 7 Bankruptcy
Debtors are eligible to file for Chapter 7 bankruptcy if they pass the North Carolina bankruptcy means test. This test compares an individual's income with the median of a comparable household in the state. Generally, those with a yearly income that is less than the median North Carolina income will qualify for Chapter 7 bankruptcy.
Alternatively, where income is above the median level, a debtor still may be able to qualify by going through the extended means test analysis, which looks at the debtor's income and expenses. If that calculation shows that reasonable monthly expenses leave them with little disposable income to pay debts, they may qualify for a Chapter 7 bankruptcy.
Disqualification from Chapter 7
Recent prior bankruptcy filings might also disqualify debtors from filing a Chapter 7 case in North Carolina. A debtor who has filed a petition within the prior six months may find the petition dismissed if the prior petition had been dismissed for bad conduct.
If the earlier dismissal was due to the debtor's willful failure to appear before the court or to comply with court orders, they are ineligible. They may also be barred if they voluntarily dismissed a case within the prior six months because their creditors sought relief from the Bankruptcy Court to recover property on which they held liens.
Exempt Assets in North Carolina
Some assets do not have to be included or sold in Chapter 7 bankruptcy liquidation. The debtor gets to keep them; these are termed exemptions. North Carolina, like many states, has set out its own exemptions. That means that North Carolina rules differ from those of other states.
Qualifying for Chapter 13 in North Carolina
Another common form of bankruptcy in North Carolina is Chapter 13 bankruptcy, sometimes called the wage earner's bankruptcy. This lets a debtor work out a reasonable debt reorganization plan as long as they have regular income to sustain the payment schedule.
This is usually managed by a bankruptcy trustee who holds a meeting of creditors to discuss the plan.
Eligibility for Chapter 13 Bankruptcy
Who can file for Chapter 13 bankruptcy in North Carolina? It is open to any debtor who requires help reorganizing their debts as long as they have a stable and regular income.
While North Carolina does not set a floor on the required income amount, it must be sufficiently high to allow the debtor to pay for basic living costs, as well as monthly payments to the bankruptcy court trustee to distribute among the debtors and to pay down the amount of debt in three to five years.
The total amount required obviously varies from debtor to debtor and depends on the amount of their debts. In addition, the debtor's outstanding obligations cannot be too high. Under current law, the total combined unsecured and secured debt maximum amount is $2,750,000.
Bankruptcy Exemptions in North Carolina
Bankruptcy exemptions are laws permitting a debtor filing for Chapter 7 to retain certain assets, rather than having to sell them to pay creditors. North Carolina permits individuals filing bankruptcy to choose between using the federal bankruptcy exemptions or the state exemptions. Only those who have resided in the state for two years or more can use the state exemptions.
North Carolina exemptions include a homestead exemption that protects up to $35,000 in equity of any single property used as the debtor’s primary residence. Where a debtor is age 65 or over and their spouse is deceased, this amount increases to $60,000 if the property was previously owned by the debtor as a tenant by the entirety or as a joint tenant with rights of survivorship.
North Carolina bankruptcy laws double all exemptions if both spouses are alive and file for bankruptcy together. For example, for a jointly owned primary residence, the homestead exemption amount increases from $35,000 to $70,000. North Carolina law also offers a list of personal property exemptions, as well as a $5,000 wildcard exemption for any personal property that isn’t otherwise protected by exemptions.
How to File for Bankruptcy in North Carolina
Anyone wishing to file for bankruptcy in North Carolina should take these steps:
1. Determine Bankruptcy Type
Before filing for bankruptcy in North Carolina, an individual must determine which type of bankruptcy is appropriate for them. As foreclosure bankruptcy is very different from reorganization bankruptcy, the choice may be clear. However, it is always a good idea to get legal counsel before determining a course of action.
2. Choose Federal or North Carolina Exemptions
North Carolina state offers its own bankruptcy exemptions. These can assist a debtor to keep their most essential assets, like a residence and its furnishings. However, the federal exemptions might work better for some debtors
3. Fill Out the Forms
Locate the bankruptcy forms necessary to file a bankruptcy on the U.S. Courts website. Download or print the relevant forms, fill them out, then file them in the appropriate bankruptcy court. This involves listing assets, debts, creditors and exemptions, along with other financial matters. Different forms are required for different types of bankruptcies.
A North Carolina debtor should gather tax returns and other documents relating to their financial situation while compiling their financial records for bankruptcy. They should also attend a credit counseling course with an approved provider within 180 days before filing.
What Happens After Filing for Bankruptcy in North Carolina
Debt relief begins soon after an individual files a bankruptcy petition in North Carolina. At that point, the automatic stay kicks in, and creditors are not permitted to take any action to collect debts.
This is an important benefit of the federal bankruptcy law since it puts the brakes on harassing phone calls, repossession actions, collection letters and threat of lawsuits. This can materially assist debtors facing collection actions like foreclosure and wage garnishment.
A bankruptcy petition that is accepted by the bankruptcy court is soon assigned to a bankruptcy trustee. This trustee arranges a meeting between the debtor and their creditors. The debtor must attend this meeting and respond to questions about the case.
How to Find a Bankruptcy Lawyer in North Carolina
If an individual decides to hire an attorney to file for bankruptcy in North Carolina, they can turn to the bankruptcy court or to their state or local Bar Association for lists of experienced attorneys. Those without funds to pay for an attorney can try the Legal Services Corporation.
FAQs about bankruptcy in North Carolina
- How long does it take to file bankruptcy in NC?
Different types of bankruptcy take different amounts of time. Chapter 7 proceedings can wrap up in as little as six weeks. Chapter 13 can stretch on for five years.
- How do I declare bankruptcy in NC?
Before filing for bankruptcy in North Carolina, an individual should determine which type of bankruptcy is appropriate for them, preferably with the help of an attorney. They must locate the requisite bankruptcy forms and fill them out, then file them in the appropriate court. It is also necessary to select between federal and North Carolina exemptions and to take a credit counseling course with an approved provider within 180 days before filing.
- Do I need a lawyer to file bankruptcy in NC?
While not a legal requirement, hiring an attorney can assist a debtor to file the right papers and come through the bankruptcy in as good financial shape as is possible. This is a complex legal procedure and it is hard for a layperson to adhere to the court rules and procedures required.
- What are the benefits of bankruptcy in NC?
Bankruptcy give a debtor a fresh start in life either by discharging the debts they cannot pay or by reorganizing debts to make them affordable. One downside is the negative credit report impact of the filing.
- How can I find a lawyer in NC to file bankruptcy for me?
If an individual wants to hire an attorney to file for bankruptcy in North Carolina, they can turn to the bankruptcy court or a state or local Bar Association for lists of experienced attorneys. Those without funds to pay for an attorney can try the Legal Services Corporation.
Teo Spengler earned a JD from U.C. Berkeley Law School. As an Assistant Attorney General in Juneau, she practiced before the Alaska Supreme Court and the U.S. Supreme Court before opening a plaintiff's personal injury practice in San Francisco. She holds both an MA and an MFA in English/writing and enjoys writing legal blogs and articles. Her work has appeared in numerous online publications including USA Today, Legal Zoom, eHow Business, Livestrong, SF Gate, Go Banking Rates, Arizona Central, Houston Chronicle, Navy Federal Credit Union, Pearson, Quicken.com, TurboTax.com, and numerous attorney websites. Spengler splits her time between the French Basque Country and Northern California.