Bankruptcy is governed only by federal law. The federal laws of the United States are “codified” within books of various groups, almost like volumes, with each volume receiving a numerical title. For example, Veterans' Benefits are addressed in Title 38 of the U.S. Code, whereas Title 17 addresses Copyrights. Bankruptcy is found in Title 11 of the U.S. Code, as are the different chapters of this type of debt relief. Here are the types of bankruptcy addressed by Title 11 that our Greensboro, NC law firm of Ivey McClellan often helps clients individual and corporate clients file.
What Each Bankruptcy Chapter is in NC
While Chapters 7, 11, and 13 are the types of bankruptcies most often spoken about, they're certainly not the only ones that exist. There are actually at least a dozen different chapters of bankruptcy which include:
- Chapters 1, 3, and 5 of the Bankruptcy Code address generic issues and operations within all of the bankruptcy law, including definitions, how trustees are selected, as well as who files claims in these cases and when to name a few. These three types of bankruptcies that a Greensboro, NC resident or company can file largely outline how a bankruptcy proceeding works.
- Chapter 7 bankruptcy involves the basic liquidation of assets for both individuals and businesses. It is the simplest and/or quickest form of bankruptcy. It involves the liquidation of non-exempt assets by a trustee, to obtain a discharge, which acts as a legally binding document absolving the individual from having to pay back any debts that were not repaid from the liquidation of assets. However, there are certain exceptions to these general rules. Credit card bills, medical bills, and other types of unsecured debt may be discharged for qualifying Greensboro bankruptcy debtors.
- Chapter 9 bankruptcy can provide Greater Piedmont Triad and other North Carolina municipalities protection from creditors while developing a plan to resolve outstanding debts. For example, Detroit, Michigan, filed this type of bankruptcy on July 18, 2013. Municipalities can include counties, school districts, cities, and even taxing districts. Municipalities must work to negotiate a repayment plan instead of liquidating all assets to repay lenders. A successful bankruptcy filing of this sort may reduce the amount of debt owed, refinance debts through a new loan, or extend debt repayment deadlines.
- Chapter 11 bankruptcy allows financial reorganization and restructuring of businesses or corporations. It is sometimes used by individuals with substantial debts. This type of bankruptcy allows a Greensboro, North Carolina company to continue doing business while adhering to a debt repayment plan, or “Plan of Reorganization,” agreed upon by the bankruptcy court. Most often, this debt repayment plan involves repayment of some, but not all, of the indebtedness owed by the company over a few years, based upon the company’s ability to pay. The Plan of Reorganization is unique and molded to the needs of the North Carolina debtor in that case.
- Chapter 12 bankruptcy pertains to the rehabilitation of debts for family farmers and fishermen with regular annual income. In such cases, filing a petition stops collection actions by creditors. Debtors who file Chapter 12 in Greensboro, NC, then propose a repayment plan to repay creditors over the following three to five years. Longer repayment periods may be granted by the U.S. Bankruptcy Courts with proper cause which a bankruptcy attorney can help you arrange. Debtors must also attend a “meeting of the creditors” to discuss financial assets and the repayment plan with the lenders under oath. A trustee is appointed to evaluate and oversee the case, collect payments from the debtor, and disburse payments to creditors.
- Chapter 13 bankruptcy concerns itself with the rehabilitation of debts for individuals with a source of regular income. This type of bankruptcy allows for the development of a repayment plan to repay all or part of the debts owed over a three to 5-year time period. This repayment plan is overseen by a Greensboro trustee. The ultimate goal of this filing is to receive a discharge, which acts as a legally binding document absolving the individual from having to pay back any debts that were not repaid (in whole or in part) in the plan. Chapter 13 has certain advantages over a Greensboro Chapter 7 filing in that it can discharge certain exceptions in the latter type of case.
- Chapter 15 bankruptcy adopts the Model Law of Cross Border Insolvency from the United Nations to provide a mechanism for addressing “cross-border” or ancillary insolvency, or debtors of foreign countries, to resolve debts owed to creditors in the U.S. Corporations in countries other than the United States may have bankruptcy cases that involve U.S. assets. This type of bankruptcy allows for foreign bankruptcy proceedings to access the U.S. Bankruptcy Courts in order to reach resolutions.
- Chapters 8, 10, and 14 bankruptcies are not published within the U.S. Bankruptcy Code and were reserved for Congress to use as needed in the future.
Bankruptcy Exemptions in North Carolina
In North Carolina, the homestead exemption plays a pivotal role in bankruptcy filings. This exemption safeguards up to $35,000 in equity of any real or personal property used as your residence (N.C. Gen. Stat. § 1C-1601(a)(1)). If you're married and both names are on the title, this amount can be doubled. For seniors aged 65 or older, whose spouse has passed away, and the property is held as tenants by the entirety or joint tenants with the right of survivorship, the exemption limit increases to $60,000.
Property owned as tenants by the entirety is exempt without any equity limit concerning the debts of one spouse. However, this can be complex to apply, so seeking advice from a bankruptcy lawyer is recommended. Additionally, if the homestead exemption hasn't been used, you could protect up to $35,000 in equity of burial plots. These exemptions can provide significant relief during the challenging bankruptcy process.
North Carolina Retirement, Wages, Alimony, Child Support, and Public Benefits Exemptions
In North Carolina, the law provides specific protection for various forms of income. Retirement accounts like 401(k)s, 403(b)s, profit-sharing and money purchase plans, SEP and SIMPLE IRAs, and traditional and Roth IRAs are mostly exempt under federal law. Each individual is entitled to an exemption of $1,362,800, as stipulated by 11 USC 522(b)(3)(C), (n) for cases filed between April 1, 2019 and March 31, 2022. Notably, IRAs and Roth IRAs have unlimited exemption under state law, extending even to inherited IRAs.
If you are receiving retirement benefits from another state government, they will be exempt if that state deems them exempt. Certain professions, such as firefighters, rescue workers, legislators, municipal/city/county employees, teachers, state employees, and law enforcement officers, receive unlimited protection for their pension benefits.
Wages earned 60 days before filing for bankruptcy, but not yet paid, are also protected in North Carolina. Further, federal law safeguards a portion of these unpaid, earned wages. Finally, if you can demonstrate that alimony, child support, or separate maintenance payments are vital for your support, these too will be exempt.
Alternatives to Bankruptcy in the Southeast
Filing for bankruptcy may seem like the only way out of a financial quagmire, but it's not always the best route for everyone. In the Southeast, there are several alternatives to consider before taking this significant step. One popular option is debt consolidation, where you combine multiple debts into a single, manageable monthly payment. This strategy can reduce your interest rates and make it easier to keep track of your obligations.
Another option is credit counseling, a service often provided by nonprofit organizations that helps you establish a realistic budget and negotiate repayment plans with creditors. On the more drastic end of the spectrum, debt settlement is an approach where you or a company negotiates with creditors to accept less than the total owed. This is often a last resort, due to the potential negative impact on your credit score. In some cases, lifestyle changes or selling off assets may be enough to dig yourself out of debt.
Remember, each case is unique and what works for one person might not work for another. It's advisable to speak with a financial advisor or Greensboro bankruptcy attorney before making a decision.
The Role of Bankruptcy Attorneys in NC
With vast knowledge and experience in this field, bankruptcy attorneys play a pivotal role in guiding you throughout the process and ensuring your rights are protected.
Here are some of the key roles of a bankruptcy attorney in North Carolina and the Southeast:
- Guidance on Bankruptcy Type: As mentioned earlier, there are different types of bankruptcies (Chapter 7 and Chapter 13 being the most common). An attorney will help determine the most appropriate type based on your income, assets, debts, and long-term financial goals.
- Filing Necessary Documentation: Filing for bankruptcy involves numerous legal forms and documents. These may include Form B101, a voluntary petition for bankruptcy, or Form B106, a summary of your assets and liabilities. An attorney will ensure all paperwork is correctly filled out and submitted promptly.
- Representation at Meetings: In North Carolina, you will be required to attend a meeting of creditors (also known as a 341 meeting) during your bankruptcy process. Your bankruptcy lawyer will represent you at this meeting, fielding questions from the bankruptcy trustee or any creditors who attend.
- Avoiding Pitfalls: From incorrectly valuing your assets to failing to understand North Carolina's homestead exemption, many potential pitfalls can occur during bankruptcy. An experienced bankruptcy attorney can help you avoid these common mistakes, ensuring your bankruptcy process goes smoothly.
- Negotiating with Creditors: If you file for Chapter 13 bankruptcy, your bankruptcy lawyer will help create a repayment plan and negotiate its terms with creditors. Their expertise can be instrumental in securing a favorable outcome.
By understanding these roles, it becomes clear that a bankruptcy attorney's assistance is invaluable during the bankruptcy process in North Carolina.
Deciding on the Best Type of Bankruptcy for You in North Carolina
If you live in or around Greensboro, North Carolina, whether that's bigger cities like Winston-Salem, High Point, Burlington, or small ones like Archdate, Eden, Asheboro, or anywhere in between and are contemplating filing for bankruptcy, schedule your free consultation with one of our Ivey McClellan bankruptcy attorneys to discuss your financial situation and whether this form of debt relief is right for you.