What You Should Know About Bankruptcy In North Carolina
North Carolina’s debt per capita is around $528, which is below the national average. North Carolina’s debt as a percentage of gross domestic product (GDP) is approximately 2.4%, which is also below the national average. As of 2021, North Carolina had a bankruptcy filing rate of 2.93 per 1,000 residents, which is below the national average of 2.99 per 1,000 residents.In 2020, there were a total of 20,166 bankruptcy filings in North Carolina, which represents a decrease of 14.7% from the previous year. Of these filings, 17,868 were consumer filings, while the remaining 2,298 were business filings.
Bankruptcy Laws in North Carolina
Bankruptcy laws in North Carolina are primarily governed by federal law, specifically the U.S. Bankruptcy Code. However, North Carolina also has some specific laws and regulations that apply to bankruptcy proceedings in the state. In North Carolina, bankruptcy cases are filed in the federal bankruptcy court located in the state. The filing fee for a Chapter 7 bankruptcy case is $338, while the filing fee for a Chapter 13 bankruptcy case is $313. North Carolina has specific exemptions that allow debtors to protect certain property from being sold to pay off creditors. These exemptions include:
- Homestead exemption: Debtors can exempt up to $35,000 of equity in their primary residence.
- Personal property exemption: Debtors can exempt up to $5,000 in personal property, including household furnishings, clothing, and appliances.
- Vehicle exemption: Debtors can exempt up to $3,500 in equity in one motor vehicle.
- Retirement account exemption: Retirement accounts such as IRAs and 401(k)s are fully exempt.
North Carolina also has a bankruptcy-specific exemption known as the “wildcard” exemption, which allows debtors to exempt up to $5,000 in any property of their choosing. In addition to these exemptions, debtors in North Carolina may also be able to use federal bankruptcy exemptions, depending on their circumstances.
The Types of Personal and Business Bankruptcies
There are several types of bankruptcy available for individuals and businesses in the United States, including:
For individuals:
- Chapter 7 Bankruptcy: Also known as “liquidation” bankruptcy, this type of bankruptcy is designed to help individuals eliminate most types of unsecured debt, such as credit card debt, medical bills, and personal loans. In a Chapter 7 bankruptcy, a court-appointed trustee may sell certain assets to pay off creditors, although certain assets may be protected by exemptions.
- Chapter 13 Bankruptcy: Also known as “reorganization” bankruptcy, this type of bankruptcy is designed for individuals with regular income who want to keep their assets but need a repayment plan to catch up on past-due debts such as mortgage or car payments. Under Chapter 13, the debtor makes a monthly payment plan to a trustee for three to five years to pay off their debts.
- Chapter 11 Bankruptcy: This type of bankruptcy is designed for individuals or businesses with large debts, and it involves a reorganization of debts under court supervision. Chapter 11 is a complex and expensive process, and it is typically used by large corporations, but can be used by individuals who have large amounts of debt.
For businesses:
- Chapter 7 Bankruptcy: This type of bankruptcy is also available for businesses, and it involves the liquidation of the business assets to pay off creditors.
- Chapter 11 Bankruptcy: This type of bankruptcy is also available for businesses, and it involves a reorganization of the business’s debts under court supervision. Chapter 11 is often used by businesses that want to continue operating while they restructure their debts.
- Chapter 13 Bankruptcy: Chapter 13 is not available for businesses, but sole proprietors may file for Chapter 13 as individuals and include their business debts in the repayment plan.
Learn More about the 3 main types of bankruptcy
Considering Business Bankruptcy in North Carolina? What You Need To Know
If you’re considering business bankruptcy in North Carolina, there are several important things to keep in mind. Here are some key considerations:
- Bankruptcy is a complex process: Bankruptcy can be a complex and time-consuming process, and it’s important to have a good understanding of the rules and procedures involved. Consider consulting with a bankruptcy attorney who is experienced in handling business bankruptcies in North Carolina.
- Chapter 7 versus Chapter 11 bankruptcy: As mentioned earlier, there are two main types of bankruptcy available for businesses: Chapter 7 and Chapter 11. Chapter 7 is a liquidation bankruptcy and involves the sale of the business assets to pay off creditors. Chapter 11 is a reorganization bankruptcy that allows the business to continue operating while it restructures its debts. Consider which type of bankruptcy is best suited for your business.
- Your business may not qualify for bankruptcy: Not all businesses are eligible for bankruptcy, and it’s important to understand the eligibility requirements. For example, a sole proprietorship can file for Chapter 7 or Chapter 13 bankruptcy, but a corporation or LLC must file for Chapter 7 or Chapter 11 bankruptcy.
- Your personal liability: If you’re a business owner, it’s important to understand that you may be personally liable for some or all of the business’s debts. If your business is structured as a corporation or LLC, you may have some protection from personal liability, but if you’ve signed a personal guarantee for a business loan or credit card, you may still be personally liable for those debts.
- The impact on your credit: Bankruptcy can have a significant impact on your personal credit score and can stay on your credit report for up to 10 years. It’s important to understand the long-term consequences of bankruptcy before making a decision.
- The impact on your employees and customers: Bankruptcy can also have a significant impact on your employees and customers. If you’re considering bankruptcy, it’s important to have a plan in place to minimize the impact on your employees and customers.
Does Bankruptcy Discharge All Debts?
While bankruptcy can help individuals and businesses eliminate or restructure many types of debt, there are some debts that cannot be discharged, or eliminated, in bankruptcy. Here are some examples:
- Certain taxes: Generally, income taxes that are less than three years old cannot be discharged in bankruptcy, as well as any taxes that have not been filed or assessed.
- Student loans: It is very difficult to discharge student loans in bankruptcy, and it generally requires a showing of “undue hardship.” This is a high legal standard that is difficult to meet.
- Debts incurred through fraud or intentional wrongdoing: If a debt was incurred through fraud or intentional wrongdoing, it cannot be discharged in bankruptcy.
- Child support and alimony: Debts related to child support or alimony cannot be discharged in bankruptcy.
- Court-ordered fines or penalties: Debts related to fines or penalties imposed by a court or government agency cannot be discharged in bankruptcy.
- Debts for personal injury or wrongful death caused by driving under the influence of drugs or alcohol: These types of debts are generally not dischargeable in bankruptcy.
How Will Bankruptcy Affect My Credit Score And Future Ability To Get A Loan?
Filing for bankruptcy in North Carolina can have a significant impact on your credit score and your ability to get a loan in the future. Bankruptcy is a legal process that allows individuals and businesses to eliminate or repay their debts under the protection of the bankruptcy court. When you file for bankruptcy, it will appear on your credit report for up to ten years. This can significantly lower your credit score, making it harder to obtain credit in the future.
What Happens To Tax Debts in Bankruptcy?
Filing for bankruptcy in North Carolina can have an impact on tax debts, but the specifics depend on the type of tax debt and the type of bankruptcy filing. Generally, income tax debts that are more than three years old and meet certain other criteria can be discharged in a Chapter 7 bankruptcy filing. This means that you will no longer be legally responsible for paying the debt, and the IRS or state tax authority will be prohibited from taking any collection actions against you for that debt. However, some tax debts may not be dischargeable in bankruptcy, including recent tax debts, certain types of employment taxes, and tax debts resulting from fraud or willful evasion. In these cases, you would still be responsible for paying the debt after bankruptcy. If you file for a Chapter 13 bankruptcy, you will be required to repay your tax debts over the course of a three- to five-year repayment plan. This can help you get caught up on your tax debts and avoid any collection actions while still keeping your assets.
What About Your Assets?
Whether or not you will lose your home or car in bankruptcy in North Carolina depends on several factors, including the type of bankruptcy you file and the value of your assets. In a Chapter 7 bankruptcy filing, you may be required to surrender certain assets to the bankruptcy trustee, who will then sell them to repay your creditors. However, North Carolina allows individuals to exempt certain assets from the bankruptcy estate, including up to $35,000 of equity in a primary residence and up to $3,500 of equity in a motor vehicle. If your home or car is worth more than these exemption amounts, you may be required to surrender them in a Chapter 7 bankruptcy filing. In a Chapter 13 bankruptcy filing, you will be required to repay your debts over a three- to five-year period, but you may be able to keep your assets, including your home and car, as long as you can continue making the required payments. Additionally, if you are behind on your mortgage or car payments, a Chapter 13 filing may allow you to catch up on missed payments and avoid foreclosure or repossession.
Statute of Limitations for Collections in North Carolina
In North Carolina, the statute of limitations for collections on most types of debts is three years from the date of the last payment or activity on the account. This means that after three years, the creditor or debt collector can no longer sue you to collect the debt. However, it’s important to note that this statute of limitations only applies to the legal right to sue for the debt, and does not erase the debt itself. It’s also important to note that the statute of limitations can vary depending on the type of debt. For example, the statute of limitations for written contracts in North Carolina is also three years, while the statute of limitations for oral contracts is only two years. Additionally, certain types of debts, such as federal student loans and taxes, may have different statutes of limitations or may not be subject to a statute of limitations at all.
Be Aware of The Cons
There are several potential cons of filing for bankruptcy in North Carolina that you should consider before deciding to pursue this option:
- Impact on credit: Filing for bankruptcy will have a negative impact on your credit score, and the bankruptcy will remain on your credit report for up to 10 years. This may make it more difficult to obtain credit or loans in the future, and if you do qualify, you may be subject to higher interest rates.
- Loss of assets: Depending on the type of bankruptcy filing, you may be required to surrender certain assets, such as your home or car, to the bankruptcy trustee to be sold to repay creditors.
- Impact on future employment: Some employers may view bankruptcy as a negative factor when considering job candidates, particularly for positions that involve financial responsibility.
- Public record: Bankruptcy filings are public record, which means that anyone can access the information. This may be a concern for some individuals who value their privacy.
- Emotional toll: Bankruptcy can be a stressful and emotionally difficult process, as it involves admitting financial difficulties and potentially losing assets.
Compare the Pros and Cons of Bankruptcy: Pros and Cons of Filing Bankruptcy
Is Bankruptcy Something You May Regret?
People may regret filing for bankruptcy for a variety of reasons, including:
- Negative impact on credit: Bankruptcy can have a significant and long-lasting impact on your credit score, making it more difficult to obtain credit or loans in the future. This can be frustrating and limit your financial options.
- Loss of assets: Depending on the type of bankruptcy filing, you may be required to surrender certain assets, such as your home or car, to the bankruptcy trustee to be sold to repay creditors. Losing these assets can be emotionally difficult and may impact your quality of life.
- Public record: Bankruptcy filings are public record, which means that anyone can access the information. This may be a concern for some individuals who value their privacy.
- Emotional toll: Bankruptcy can be a stressful and emotionally difficult process, as it involves admitting financial difficulties and potentially losing assets.
- Negative social stigma: Some people may feel embarrassed or ashamed about filing for bankruptcy, as there can be a social stigma attached to it. This can be a challenging emotional burden to bear.
Don’t Qualify For Bankruptcy in North Carolina? Don’t Panic
If you do not qualify for bankruptcy in North Carolina, you may need to explore other options for managing your debt. An alternative to consider is debt settlement. Debt settlement involves negotiating with creditors to settle your debts for less than the full amount owed. This can be a good option if you have a significant amount of debt but cannot qualify for bankruptcy.
There are some potential benefits to debt settlement over bankruptcy that may make it a more favorable option for some individuals.
- No bankruptcy on your credit report: Filing for bankruptcy shows on your credit report for up to 10 years. On the other hand, debt settlement does not show as a bankruptcy.
- Cost: Filing for bankruptcy can be expensive, with filing fees, attorney fees, and other costs adding up quickly.
- Emotional Impact: People report horror stories of the negative emotional impact of BK.
- With a bankruptcy for the rest of their life: Employers or lenders can ask if someone has filed BK for the rest of their life. It is much less likely to be asked if one ever used debt settlement to pay back an agreed to amount.
- Control: With debt settlement, you may have more control over the process and negotiations with your creditors, whereas with bankruptcy, a court will make the final decision.
- Less severe consequences: Filing for bankruptcy can have significant consequences, such as the liquidation of your assets, whereas debt settlement may allow you to negotiate a more manageable repayment plan while keeping your assets.
Bankruptcy vs. Debt Relief: What’s Right For You and How We May Be Able To Help
CuraDebt – An Alternative To Consider
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