If you are having trouble paying your bills, you almost certainly will be able to file either Chapter 7 or Chapter 13. Two main things determine which Chapter you will file under: how much money you make and how much property you have.  The new bankruptcy law looks at your household income in the six months before you file bankruptcy. If you are below the median income for a household of your size, then you may file Chapter 7.  Even if your household income is above the median, you may still be able to file Chapter 7.  The court then proceeds through a complex calculation based on your household size and subtracts certain allowed expenses.  At the end of the calculation, you end up with a figure which is called “disposable income.”  If your disposable income is $100 or less per month, you can file Chapter 7.  If it is more, you will have to file Chapter 13.  I will do the numbers at your free initial consultation. 

            Even if you are eligible to file Chapter 7, you may choose to file Chapter 13 for several reasons.  If you have assets worth more than you are allowed to keep in Chapter 7, it is usually possible to keep those assets in Chapter 13.  Also, you may have property which is in foreclosure or about to be repossessed.  In that case, Chapter 13 offers more protection.

             How much property can I keep if I file bankruptcy?

             What you are allowed to keep in North Carolina is called your “exempt property”.  It is also sometimes referred to as your “exemptions.” Each individual filing Chapter 7 is allowed to keep $37,000 in equity in real estate that is your residence. (If your house is worth $100,000 and you have a $75,000 balance on your mortgage, you have $25,000 equity in your house.)  You are allowed $3500 equity in a car, $5000 in household property, any cash value in life insurance (so long as the beneficiary is your spouse or a minor child), retirement money in an IRA, 401k, 403b, or other qualified retirement plan. Pensions and social security are exempt, as is up to two months wages.  You can also apply up to $5000 in any unused real estate exemption.   If a married couple files jointly, they each get the exemptions above.  Those are the major exemptions.  There are several other less used exemptions available under state law.

             You get the North Carolina exemptions if you have lived in North Carolina for two years.  If you have not lived here two years, you get the exemptions of the state you lived in for the majority of the six months preceding the two years before filing bankruptcy.  If you are not able to claim the exemptions of that state because you are no longer a resident there (some states limit their exemptions to state residents), then you get the federal exemptions, which are similar to North Carolina’s.

             If you file Chapter 13, you can keep property that is worth more than your exemptions if you to agree to pay into your Chapter 13 plan the amount the Court would have gotten for the property if you had filed Chapter 7.

             How can bankruptcy help me save my property? 

            When you file bankruptcy, a court order goes automatically into effect.  The court order, called the automatic stay, says no creditor can take any action to collect from you.  The creditor cannot foreclose, sue you, or seize any of your property, or even call you on the phone.  If a foreclosure or lawsuit is in progress, the bankruptcy stops it. This court order even applies to the IRS.

             Then, in the bankruptcy, if you want to keep property which is collateral for a debt (for example, your car or your house), you will propose a plan which provides for the repayment of that debt.

             In certain cases, if you have been dismissed from a prior bankruptcy within a year of your new filing, the effect of the automatic stay is limited. 

             Can I include taxes in my bankruptcy?

             It is possible to discharge certain income taxes in bankruptcy.  The taxes have to be at least three years old, you have to have filed your tax return and the return must have been filed at least two years ago, and the taxes cannot have been assessed within the last 240 days.  If you owe taxes, please bring any paperwork you have received from the IRS or the Department of Revenue to your free initial consultation.  If the taxes cannot be discharged, often we can propose a repayment plan that is affordable for you.

             What about my student loans?

             Student loans are not dischargable in bankruptcy except in case of “extreme hardship.”  An example of extreme hardship would be a permanent medical disability.

             What about debts I incurred in my divorce?

             Child support and alimony are not dischargable.  Debts that you agreed to pay (such as credit card bills) in a separation agreement or court order generally cannot be discharged.  However, if you were jointly liable on debts with your former spouse and those debts were not mentioned in the court order or separation agreement, the debts can be discharged. Of course, if your ex-spouse was jointly liable on the debts, the creditors will still be able to collect from him or her, unless they have also filed bankruptcy.

             How long does bankruptcy take?

             In most Chapter 7 cases, you will receive your discharge about four months after you file.  Chapter 13 repayment plans are either three or five years.

             What does bankruptcy do to my credit record?

             It all depends upon what your credit record looks like when you go into bankruptcy.  If you have good credit (a rarity for most people who have debt problems), it will obviously have a negative effect.  If you have bad credit, it’s a good way to get a fresh start and to begin rebuilding your credit.  To rebuild your credit,you will have to repay your remaining bills on time and get no new negative marks on your credit.

             Chapter 7 stays on your credit report for ten years, and Chapter 13 will stay on your credit report for seven years.  In the old days, that meant your credit was ruined for ten or seven years, depending on which Chapter you filed. That’s not the way it is today. If, after your discharge, you pay your bills on time, you can rehabilitate your credit in three years.

             What does it cost?

             Ah, it’s the answer you really want to know, and it’s the one I can’t put on the website. My fee depends on the complexity of your case.  Simple cases are cheaper, messy cases cost more.  That’s why I offer a free initial consultation.  At the end of the hour, I’ll have a pretty good idea what’s going to be involved in your case and I’ll be able to quote you a fair fee. If you decide to hire me, you will get a written contract spelling out the fee.

              I do most of my cases for a flat fee, so you’ll know up front what the total cost will be.  Also, all fees I charge have to be approved by the bankruptcy court for reasonableness.  The court’s theory is that if I’m charging you too much money, that’s money that could be going to pay your creditors.