Types of Bankruptcies | Understanding Each Chapter Bankruptcy Option Available To North Carolina Residents

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:

Chapter 7  Bankruptcy

Chapter 7 bankruptcy is the most straightforward form of bankruptcy in North Carolina. It is designed for debtors in financial distress who do not have the means to pay back all or a portion of their debts. Under this type of bankruptcy, a debtor's non-exempt assets are sold by a trustee, and the proceeds are used to pay off creditors. This process can lead to the discharge of unsecured debts, such as credit card debt, medical bills, and personal loans. Eligibility for Chapter 7 is determined by the means test, which compares your income to the median income for a household of your size in North Carolina. If your income is below the median, you may qualify to file for Chapter 7. It's important to note that certain debts, like student loans, child support, and alimony, cannot be discharged under Chapter 7. 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

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

Chapter 11 bankruptcy is primarily aimed at businesses, allowing them to continue operating while they work to restructure their debts. This form of bankruptcy is not limited to corporations; it is also available to sole proprietors and partnerships in North Carolina. 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

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

Chapter 13 bankruptcy provides an opportunity for individuals with a regular income to reorganize their debts and make manageable payments over a three to five-year period. Unlike Chapter 7, which liquidates assets to pay creditors, Chapter 13 allows debtors to retain their property, including their homes, and avoid foreclosure. This type of bankruptcy is particularly suited for those who have fallen behind on mortgage or car payments and are seeking a way to catch up. 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

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 help 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.

Find the Best Type of Bankruptcy for You in North Carolina: Contact Ivey McClellan Today

Navigating through the complexities of bankruptcy can be challenging and overwhelming. Whether you're considering Chapter 7, 13, 11, 12, or even Chapter 9 for municipalities, making informed decisions is critical for your financial future. At Ivey McClellan, our experienced team is dedicated to providing you with personalized legal guidance tailored to your unique situation. We understand the nuances of North Carolina bankruptcy laws and are committed to helping you explore all your options to achieve the best possible outcome. 

Don't face this daunting process alone. 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.