People who have more debts than income may recognize that they need to take steps to get their finances under control. One of these options is that they may opt to file for bankruptcy. Consumers typically have to decide if they’ll file for Chapter 7 or 13, both of which can address those debts to a certain extent.
In order to qualify for a Chapter 7 bankruptcy, a filer has to meet the requirements of the means test, which means that they don’t earn much income and can’t reasonably be expected to repay their debts any time soon.
What happens to debts in a Chapter 7 bankruptcy?
Chapter 7 bankruptcy is known as the liquidation bankruptcy because a filer’s non-exempt assets can be seized and liquidated by the bankruptcy trustee to repay as much of their debts as possible. In reality, it’s up to the trustee to determine if the process of liquidating available assets is worth the court’s time. In the vast majority of cases, a person who qualifies for Chapter 7 bankruptcy won’t have enough assets to warrant liquidation.
What assets are exempt from the process?
North Carolina requires filers in this state to use state-level exemptions. There’s no ability to choose to file using federal exemptions. Some of the more common exemptions in North Carolina include:
- Unpaid wages backdated two months
- Up to $35,000 in home equity, but it may increase to $60,000 in some cases
- Up to $7,000 in personal property
- Up to $3,500 in vehicle equity
- Up to $500 in wildcard exemptions, but may increase to $5,000 if part of the homestead exemption is applied here
- The entirety of a retirement plan
- Life insurance policies if the filer’s child or spouse is the beneficiary
- Up to $25,000 in college savings accounts
Anyone who’s considering filing for bankruptcy should explore how these exemptions may impact them. Working with a legal representative who can assist with this is beneficial so they can learn as much as possible about the entire process, including whether any of their property will be reasonably at risk of sale in the event that they file for Chapter 7 bankruptcy.
