Chapter 7 and chapter 13 bankruptcies each have their own advantages and disadvantages. However the main difference between chapter 7 bankruptcy and chapter 13 bankruptcy for an individual or a couple is usually about the retention of property. The most common question asked is, “Will I get to keep my house” although some wish to know whether they keep their vehicle or other assets. The answer to this depends on a number of factors, including the exemptions a person can claim, the equity that exists in the asset, and whether the bankruptcy petition is filed under chapter 7 or 13.
In Chapter 13 bankruptcy, the debtor files a repayment plan to pay all or a portion of the person’s debts owed over a given period of time. The repayment amount depends upon a number of factors, including the debtor’s income or earnings, how much property is owned, and the amount and type of debts owed. It is understood that, under Chapter 13 bankruptcy law, real property is often retained because the debtor is making the debts current, or paying off the debts, on properties they wish to keep.
Chapter 7 bankruptcy is different in that, although the court discharges most of the debts, the trustee can take any property the debtor had an ownership interest in that is not exempt under State or Federal law, sell it, then distribute the proceeds to creditors. The keyword is exemption and it is important to note that Federal bankruptcy exemptions are not available in North Carolina. The bankruptcy court will abide by the exemptions provided under North Carolina statute. Some of the exemptions that are most relevant to individuals are, as of this writing (5/7/2014):
- The Homestead exemption which allows the debtor up to $35,000 in equity in real property. This amount can be claimed by each spouse, otherwise known as doubling, up to $70,000 in equity. If the debtor is 65 years or older, the allowable exemption is $60,000 as long as the property is deeded to tenants by entirety or jointly with rights of survivorship and the spouse is deceased.
- Personal property exemption, such as furnishings, appliances and clothing, not to exceed $5000 for the debtor and $1000 for each dependent up to $4000 so long as the property was not purchased within 90 days of filing bankruptcy. *
- One automobile in which the debtor’s interest does not exceed $3500.*
- Cash value of insurance plans as described in Article X, Section 5 of the Constitution of North Carolina, of which a spouse or a dependent is the beneficiary.
- Retirement benefits, annuities, and trusts as described in section 408 of the Internal Revenue Code.
- Up to $2000 worth of Implements, tools, professional books, or tools of the trade used for work so long as these were purchased more than 90 days prior to filing bankruptcy.*
- A “wild card” of any unused portion of the Homestead exemption, with a maximum of $5,000, to be applied to anything the debtor desires. Most individuals use this “wild card” exemption to protect cash, bank accounts, nonexempt equity in automobiles (or a second automobile) or any other item owned by the debtor, so long as it is worth less than the “wild card” amount, in the aggregate.
*It is important to note that any property on which you still owe is subject to repossession if payments are not kept current in a Chapter 7 context. Any amounts described above are subject to change.
The list of exemptions for North Carolinians can be found at N.C. Gen. Stat. § 1C-1601 (a). Due to the complexity of Federal bankruptcy and State collection laws and its propensity for constant change, it is highly recommended that you seek the legal advice of a bankruptcy attorney at IMGT. Contact us today to schedule your consultation with one of our attorneys.