Whether you file bankruptcy under Chapter 7 or Chapter 13, pretty much everything you own at the time you file the petition becomes property of the "bankruptcy estate". Sounds bad, right? Wrong! Just because property is included in the bankruptcy estate doesn't mean your creditors can get their hands on it. Many, if not all, of your assets will be considered "exempt,- meaning your creditors can't touch them. The rest are considered "nonexempt.-
Understanding the difference is very important in both Chapter 7 and Chapter 13 cases. In a Chapter 7 case, nonexempt assets are subject to liquidation; the trustee can take the property, sell it, and distribute the proceeds to your creditors. In a Chapter 13 case, the amount you have to pay your creditors is generally equivalent to the value of your nonexempt assets. In other words, if you have $10,000 in nonexempt assets, you'll have to pay at least that much over the life of the repayment plan.
So what is considered "exempt-? Well, the Bankruptcy Code sets forth a list of various types of property and assets that debtors can keep. Each state also has its own list of exemptions. Thirty-four states have opted out of the federal exemptions. Debtors in those states must use the state exemptions. The other states allow debtors to choose between the federal and state exemptions. Fortunately, the federal exemptions and those of each state allow you to keep most of the property that you need and value the most.
For most people, the two most important assets are their home and their car. The exemptions for these types of property generally turn on the amount of equity a person has in the property. Equity is the extent to which the value of an asset exceeds what you owe for it. If you don't have any equity in your home or car, there's no issue; you get to keep it, end of story. If you do have equity, you can exempt up to a certain amount of that equity. To the extent your equity exceeds that amount, it is considered nonexempt. In a Chapter 7 bankruptcy, this means the trustee could sell the property to recover that equity, or you may have to pay the difference if you want to keep the property. In such cases, Chapter 13 bankruptcy may be the better option for you.
The exemptions avaliable in North Carolina, which has opted out of the federal exemptions, are a good example. North Carolina provides a "homestead exemption,- which allows you to keep up to $18,500 of the equity in your home. You can also exempt up to $3,500 of equity in your car. For household goods (furniture, appliances, clothes, etc.), you get to exempt up to $5,000 in value, plus an additional $1,000 for each dependent you have (up to $4,000). You can exempt up to $2,000 for professional books and tools particular to your trade.
Additional exemptions in North Carolina include: life insurance proceeds; personal injury awards; retirement accounts and annuities; all IRA accunts; public benefits (e.g., social security and unemployment payments); up to $3,500 in professionally-prescribed health aids; all alimony and child support payments; and up to $5,000 toward any other property, to the extent you haven't used all of your homestead exemption (the "wildcard- exemption).
There is also an unlimited "tenancy by the entirety" exemption to protect any and all real property you have. In North Carolina, real property bought in the name of husband and wife is deemed to be a "tenancy by the entirety". The only drawback is that this exemption cannot be claimed against creditors where both you and your spouse owe the debt. Where that is not a problem, this exemption can be a lifesaver, to protect your home as well as other real property.
The really good news is that, in North Carolina, every person gets to claim a full set of these exemptions. For example, if you and your spouse decide to file bankruptcy together (called "jointly"), you get a full set of exemptions and so does your spouse. In effect, this doubles the amount of stuff you and your spouse can keep and protect.
Understanding and correctly applying the available exemptions is crucial to ensuring you get the maximum benefit bankruptcy has to offer you. That's why it is essential to retain an experienced bankruptcy attorney who can walk you through this process. In North Carolina, contact The Law Offices of John T. Orcutt, with convenient office locations in Raleigh, Durham, Fayetteville, and Wilson.
P.S. Want to know the "really, really good news"? Most of the time, with proper planning, clients of The Law Offices of John T. Orcutt get to keep everything and lost nothing. That's right...file bankruptcy...and lose nothing.