What is this new law?
The new bankruptcy laws that went into effect in October 2005 still offer good protection for financially challenged families in North Carolina. The bankruptcy laws have been through many similar reforms over the years, but remain a strong critical option when payments on debts are just too high in proportion to income. Attorney Rod A. Vujovic and his staff have attended many bankruptcy seminars and continuing legal education classes in order to stay updated on the latest developments in consumer bankruptcy law, so we can continue giving our clients a fresh new start through bankruptcy.
Just when Congress revised the bankruptcy laws to prevent abuse by those able to pay their debts, our North Carolina legislature raised the amounts you will be allowed to claim as exempt property in your bankruptcy. That means that you will be able to retain more equity in your house, vehicle, and other property than before the new law. For example, under the old law you would not be able to file a Chapter 7 bankruptcy without losing your house if the equity exceeded $10,000 per spouse. Under the new exemptions, a full $35,000 per spouse of home equity would be protected. In many cases, a widowed spouse can protect up to $60,000 in home equity. For your car, each spouse can protect $3,500 of equity, up from only $1,500 per person before. In addition to these and other exemptions, there is a special “wild card” exemption that may allow each spouse to protect $5,000 in any property, including any extra value in your car. There is even an additional $5,000 exemption per spouse, and an additional $1,000 per dependant, that can be used to protect “household goods”. If the equity in any of your property exceeds these North Carolina exemption amounts, you might be able to file Chapter 13 bankruptcy and still keep your property. We will review your individual situation and advise you as to your best option.
What is a Chapter 7 Bankruptcy?
Chapter 7 is the most common form of bankruptcy. It is also the simplest to file. In a Chapter 7 bankruptcy, you will not repay many of your debts, and your creditors will be forbidden to attempt collection from you.
Unsecured debts such as credit cards, medical bills, personal signature loans and all other loans and debts that are not secured by collateral are generally discharged (meaning gone forever!) in a Chapter 7 bankruptcy.
Certain debts are not dischargeable, including any debt that is not listed in your schedule of creditors, certain taxes, alimony, child support, criminal debts, student loans, and a few others. We can help you to determine whether or not a debt will be eligible for discharge.
What is a Chapter 13 Bankruptcy?
Chapter 13 is also known as a reorganization or consolidation bankruptcy, because your debts are reorganized into a payment plan over 3 to 5 years. At the completion of the Chapter 13 plan, your debts will be discharged, much like in the Chapter 7.
People with problems with secured debt are frequently better off filing a Chapter 13 case than a Chapter 7 case because the Chapter 13 will allow the debtor to pay off the past-due secured debt over time. Chapter 13 allows you to stop the foreclosure of your home or repossession of your car and get caught up on the past-due payments over a period of years, rather than all at once. Once your Chapter 13 case has been filed your future mortgage payments will be made through your Chapter 13 case plan along with the past due payments. The past due amounts will be paid at 0% interest.
In Chapter 13, the automatic stay also protects people other than the debtor who are “co-debtors.” Co-debtors are people who also have an obligation to pay the same debt as the debtor. That includes people who have guaranteed or co-signed the debt for the debtor.
Certain debts that would not be dischargeable in a Chapter 7 might be handled in a Chapter 13. We will advise you on whether Chapter 13 would be appropriate for you, depending on your income, assets, and type of debts.
Do I Get To Keep My Property?
You are entitled to keep a generous amount of your belongings when filing bankruptcy. North Carolina law now provides higher personal exemptions–items that are protected from seizure by your creditors.
You will be allowed to keep a certain amount, usually all, of your household goods with a current market value of $5,000 per spouse, plus $1,000 per child. Other essential items (see below) may also be protected if they fall within the exemption guidelines.
Can I Keep My House?
North Carolina law allows each spouse or individual to keep $35,000 equity in a homestead. A homestead is defined as your personal residence (mobile home or house plus land) that you are living in at the time of the bankruptcy filing. Equity is determined by subtracting the amount that you owe on your mortgage(s) from the fair market value of your home.
If your home equity does not exceed $35,000 ($70,000 for married couple and many widowed spouses) you should not have a problem keeping your home in a Chapter 7, as long as you are current on your house payments both at the time of filing and also in subsequent months. If your equity exceeds the allowed exemption or if you are behind in your payments, a Chapter 13 might allow you to save your home.
The automatic stay protects you from foreclosure of your house during the time your bankruptcy case is open. However, if your payments fall behind after filing, the bank may ask for court permission to lift the automatic stay and begin foreclosure proceedings
To help determine the value of your home, review any recent appraisals of your home, or check with your county tax department for the current tax value assessment of your real property.
Can I Keep My Vehicle(s)?
North Carolina state law allows each individual to keep $3,500 equity in a motor vehicle. To determine the amount of equity you have, we will need an accurate current RETAIL market value of all of your vehicles as well as the payoff amount. You may obtain the retail value of your vehicle online for free at www.nadaguides.com — If your equity exceeds the $3,500 mark, other exemptions might allow you to protect up to $8,500 in your vehicle equity.
If you have a loan on your vehicle, you MUST keep the payments current during and after the bankruptcy to avoid repossession.
If your car is “upside down,” meaning you owe more than it’s worth, we recommend that you look into the possibility of surrendering the vehicle, which allows you to get out from under that crushing monthly debt and purchase or finance a less expensive car after bankruptcy. Another possibility is to “redeem” the vehicle by paying the current retail value of the vehicle, and the remaining loan balance would be discharged. We may be able to assist you in finding a lender that will give you a new loan to pay this redemption amount to your existing lender, which could save you thousands of dollars compared to your current vehicle loan.
Will I Lose My Retirement Savings?
Most retirement savings plans are protected by the Employee Retirement Income Security Act (ERISA), and are fully protected in bankruptcy. We can help you determine whether your specific retirement account will be protected in bankruptcy so you can keep the savings intact for your retirement. Also, Individual Retirement Accounts (IRAs) are generally fully protected in bankruptcy.
When Will The Harassing Phone Calls From Creditors Stop?
The automatic stay goes into effect the moment your bankruptcy petition is filed. Once our office has prepared your bankruptcy petition and you have thoroughly reviewed and signed it, your bankruptcy petition will be filed electronically with the bankruptcy court, meaning that we can get a case number instantly. At this point, creditors must stop contact with you, including telephone calls, letters and all legal actions. You and your creditors will receive an official notice from the United States Bankruptcy Court.
Will My Bankruptcy Filing Be Published In My Local Newspaper?
A list of bankruptcy filings is not published in the newspaper here in our local area. However, bankruptcy information is part of the public record, just like state court proceedings. Bankruptcy matters are handled in federal court, with documents filed with the Clerk of the United States Bankruptcy Court in either Charlotte or Asheville. Depending upon which county you live in, your court appearance will be held at the federal courthouse in Wilkesboro, Asheville, or Shelby.
Will I Ever Get Credit Again?
Rather than the tens of thousands of dollars that you may currently owe, and may reflect better than repossessions, foreclosures or even late payments. Bankruptcy will typically improve your debt-to-income-ratio, which is an important factor that many creditors consider when extending new credit. Although a bankruptcy can remain on your credit report for up to 10 years, most people resume normal credit activities immediately after receiving their discharge. The interest rates may not be prime, and some waiting periods may apply, but you can begin re-establishing your credit immediately, as long as you stay current on your payments. However, we will counsel you to change your spending habits to get away from dependence on credit and avoid the credit trap in the future.
For articles, resources, and support to help you responsibly establish credit after bankruptcy, visit www.lifeafterbankruptcy.com – a web site by Stephen Snyder, Founder of the After Bankruptcy Foundation and author of Credit After Bankruptcy.