When deciding to file for bankruptcy, one of the biggest concerns people have is losing their home. The truth is, many factors will determine if you can keep your house while making a financial fresh start.
One of those factors is the type of bankruptcy you choose.
Chapter 7 and Chapter 13
Many Americans are living paycheck to paycheck. And with rising costs of everyday items, it’s challenging to stay caught up on bills, let alone try to put money aside and get ahead. If you’re familiar with this type of situation, you know how devastating it can be to be hit with a significant expense, such as medical expenses or expensive car or home repairs.
If you are dealing with overwhelming debt, declaring bankruptcy may seem like your best option. The two most common types of personal debt are Chapter 7 and Chapter 13, and there are some key differences between the two.
Chapter 7 is known as a liquidation bankruptcy and involves selling the debtor’s non-exempt assets. The proceeds are used to pay creditors. It also allows for the discharge of unsecured debts, such as credit cards and medical expenses. North Carolina has a homestead exemption, which protects up to $35,000 of home equity. If you don’t have that much equity and are keeping current on your mortgage payments, then you can keep your house.
However, to file for Chapter 7, you must pass a means test. For North Carolina, it is an annual income of less than $107,128 for a family of four.
Your other option is Chapter 13, which is known as a reorganization bankruptcy. The debtor works on creating a payment plan to pay back their debt over a period of a few years. This may be a better option if you have a regular income and significant equity in your home. It also allows you to discharge some debt not permitted under Chapter 7.
Everyone’s situation is different, so discussing your options with someone who understands North Carolina’s bankruptcy laws is important.