Making Sense of North Carolina Bankruptcy Exemptions

When individuals decide to file for bankruptcy, one of the biggest concerns they have when doing so is that they’re going to have to part ways with their belongings, like their home, their car, jewelry, and other assets. Fortunately, that doesn’t have to be the case, as there are certain exemptions you’re entitled to when filing for this form of debt relief. Continue reading for an overview of those bankruptcy exemptions you may qualify for. 

How Exemptions Work

Chapter 7 bankruptcy filers can look to the list of exempt assets as ones that are shielded from liquidation by the Bankruptcy Court. In other words, should their full value be exempt, you wouldn’t have to turn it over to the Trustee to be sold and have the proceeds of their sale turned over to creditors. Otherwise, if it’s not on the exemption list or its value exceeds the exempted threshold, the trustee presiding over your case can require its sale and for any funds to go to creditors, like credit card companies, medical facilities you have outstanding debts with, and other unsecured creditors. Assets that cannot be paid off through liquidation are discharged (eliminated).

As for Chapter 13 repayment plan bankruptcy filers, their exempt assets help determine how much they may owe unsecured creditors and how much they have to repay through their plan. The focus of Chapter 13 is restructuring debts and paying back what you can afford. At the end of a Chapter 13 case, filers have most unsecured debt discharged. A chapter 13 plan lasts between three and five years. 

What Property Is Exempt From Creditors in North Carolina?

NC General Statutes Chapter 1C Article 16 (NCGS § 1C-1601) outlines our state’s different bankruptcy exemptions. Those include: 

• Property:
  • A residence: Commonly referred to as the homestead exemption, it allows for debtors to each claim up to $35,000 in real property. That limit increases up to $60,000 for individual debtors over age 65 if they previously owned the property with their spouse and their spouse is deceased. 
  • Wildcard exemption: This allows debtors to claim up to $5,000 of any type of property as exempt if they do not use all of their residential exemption. 
  • Motor vehicle: Debtors are entitled to a $3,500 exemption for one automobile.
  • Household furnishings and goods, clothes, appliances, books, animals, crops, or musical instruments: There is a $5,000 exemption for each debtor plus $1,000 for each dependent, with a maximum allowable amount of $4,000. However, to qualify for the exemption, these items must primarily be for personal, family, or household use.
  • Tools of the trade: There is a $2,000 exemption for these.
  • Health aids: This is also exempted 100% if it benefits the debtor or their dependents.
• Insurance proceeds or public benefits:
  • Life insurance: This is 100% exempt, provided that the named beneficiaries are spouses or children.
  • Personal injury or wrongful death settlements: Generally, 100% would be exempt; however, claims for legal, medical, dental, hospital, accident or injury-related health care and funeral services are not exempted.
  • Social Security Disability benefits: 100% of these are exempt in a bankruptcy.
  • Additional public program benefits: This may include crime victims’ compensation, aid for the blind, unemployment benefits, workers’ compensation, and veterans benefits
• Investment accounts: 
  • Individual retirement plans: Typically, 100% would be exempt, provided it compiled with Internal Revenue Code requirements, which means that it would need to be a tax-exempt pension or retirement account, such as a 401(K), 403(b), SEP, Simple or Roth IRA, or profit-sharing or money purchase account, up to certain limits. Any additional retirement benefits from other states would only be exempt in the other states.
  • A college savings plan: This is exempt up to $25,000; however, funds paid into such a plan within the last 12 months typically would not be exempt unless contributed within the ordinary course of business. 
• Income:
  • Wages: Any money earned within the 60 days preceding your bankruptcy filing is exempt from your bankruptcy per NCGS § 1-362 up to the amount that is deemed as needed to go toward the upkeep of your family.
• Loans, grants, and other financial instruments:
  • Student financial aid: Perkins Loans, Pell Grant, Federal Work-Study Programs, and Federal Family Education Loan Program are exempt, meaning a bankruptcy trustee cannot require them to be liquidated to repay creditors.
  • Irrevocable trusts: These are exempt from bankruptcy and thus can’t be used to pay creditors since they’re not considered to be yours as you’re no longer in control of them.

Assets and Debts That Cannot Be Exempted in a North Carolina Bankruptcy

The same state statute highlighted above also spells out certain items debtors cannot take exemptions for when filing for bankruptcy. Income, assets, or debts included on that list are:

• Property-related items, such as:
  • Personal property acquired within 90 days prior to judgment collection proceedings commencing or you filing bankruptcy
  • A mechanic’s, laborer’s, or statutory (non-judicial) lien on a specific property
  • A contract obligation to purchase a specific real property
  • Some contractual interests such as loans you agreed to take out.

The above exemptions do not apply or protect property from certain types of debts, including: 

• Court judgments for:
  • Child support, alimony, or other distributive award
  • Criminal restitution
• Government-related debts, such as:
  • Claims of the United States, like taxes, as provided by federal law
  • Claims of North Carolina for taxes and appearance or fiduciary bonds

Applicability of NC Bankruptcy Exemptions

While bankruptcy is a federal matter, each state has its own exemption laws that apply to cases, such as determining what exemption thresholds are. In North Carolina, anyone wishing to file for bankruptcy must have been living in the state for at least 730 days or more in our state to take the exemptions afforded to NC residents. If you haven’t been here that amount of time, then you’d be required to follow the exemption rules that applied in the state where you previously resided.

Biggs Law Firms Helps Individuals Understand How Bankruptcy Exemptions Work in North Carolina

Bankruptcy is a particularly complex process. Knowing your rights, as it relates to where you can file,  the exemptions you are eligible to take, and what debts you might have to repay is critical.  A bankruptcy lawyer at our firm can provide you with reliable answers about whether you can keep your property when filing bankruptcy, which can help you in deciding whether this debt relief option is the best choice for you. Our attorneys at Biggs Law Firm are ready to talk, so contact us for an initial consultation.