Not all debt can be erased in Chapter 7 bankruptcy
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The first thing to know about North Carolina bankruptcy is that it’s not a 100% “get out of debt” card – in most cases. The extent of your debt relief depends on the types of debt you owe. If your only debts are credit cards, medical bills, and personal loans with no collateral, you could truly walk out of your Chapter 7 bankruptcy discharge owing no debt. However, most bankruptcy filers don’t have just unsecured debt in their lives.
Which Debts Cannot Be Discharged in Chapter 7?
When you choose Chapter 7 for your North Carolina bankruptcy, you get the most sweeping and fastest debt relief available under the law. However, it doesn’t relieve you of all your obligations. For instance, if you rent an apartment, filing bankruptcy to get you out of credit card debt won’t excuse you from paying your rent. However, if you have a past-due balance from an apartment you once leased but left, that can be wiped out. Your standard living expenses also can’t be discharged such as insurance, utilities, etc.
Secured Debt Cannot Be Discharged in Chapter 7 Bankruptcy
If you have a mortgage or auto loan, you cannot try and discharge the debt while keeping the associated asset. If you’re current on your auto loan and mortgage but want to file bankruptcy because of excess medical debt, you should be able to keep those loans intact. Lenders often work with bankruptcy filers so long as you don’t fall behind on your payments and your lender is willing to be flexible with you.
But suppose you had an auto loan or mortgage, and the asset was repossessed because you fell behind on payments. If there’s still a balance owing on that old secured debt, but the asset is long gone, that lingering balance can be wiped out. Also, if you have a mortgage and choose Chapter 7 bankruptcy, be aware that a generous amount of equity can be protected. For an individual filer, $35k in home equity can be shielded and $70k for a couple.
Child Support and Alimony Cannot Be Discharged in Chapter 7
If you are under a family court agreement to pay spousal support, alimony, palimony, or child support, you cannot lessen or discharge those obligations using bankruptcy. The only way to lessen payments under a family court order is to go back to family court and talk to the judge. Whatever you’re ordered to pay, you should pay.
Student Loans Can Sometimes Be Discharged in Chapter 7
If you owe private student loans, you might be able to get them discharged pretty easily. In North Carolina, the statute of limitations on this type of debt is three years. What this means is that the statute starts ticking from the time your debt falls delinquent. So if you had private student loans and stopped making payments in December 2014, by December 2017, the lender can no longer sue you to try and enforce the debt.
But with federal student loans, it’s a bit more of a challenge. Federal loans don’t fall under statutes of limitation, and you have to show extenuating circumstances to get them discharged. If you’re chronically ill and can’t work – or terminally ill – that’s likely to sway the court. Also, if you’re impoverished with no hope of reversing course, they can discharge. But for most people, it’s near impossible for federal loans just to go away.
Some Income Taxes May Be Discharged, Others Not
With income taxes, if you filed the returns on time but couldn’t afford to pay the debt, and the tax has been outstanding more than a couple of years, it may be eligible for discharge. But if you filed the return late or it’s a very recent tax return, the tax debt won’t be eligible for discharge. If you owe payroll taxes for employees, those are also not dischargeable.
To find out more about the benefits of North Carolina bankruptcy and whether Chapter 7 might be the solution for your financial problems, contact the Law Offices of John T. Orcutt. Call +1-888-234-4190 now for a free bankruptcy consultation at one of our convenient locations in Raleigh, Durham, Fayetteville, Wilson, Greensboro, Garner or Wilmington.