- The majority of bankruptcy cases in North Carolina are filed under Chapter 7, which is also called "liquidation." Liquidation helps people make clean starts by eliminating unsecure debts. A bankruptcy petition is filed in the United States Bankruptcy Court; the debtor is assigned to a court trustee. The trustee works with the court to administer the proceedings. The debtor turns over all assets and debts to the trustee. Assets that exceed the amount of property that is exempt by North Carolina law is liquidated and divided between the debtor's creditors.
Chapter 13 bankruptcy allows people with less than $100,000 in secured debts and $350,000 in unsecured debts to file for court protection of their property as they go through a financial "reorganization." Generally, Chapter 13 is pursued by debtors who suffered a temporary financial setback. The debtor must be employed or demonstrate an income source that will allow him to repay his debts under a court-approved plan. - To make a determination as to whether the debtor is eligible to file for Chapter 7, the debtor has to take a "means test," which determines if the household has enough income to repay some or all of their obligations. People with a household income that is greater than North Carolina's median income must apply a special formula to make the determination. If they do not pass the means test they must file for Chapter 13.
- The debtor initiates the bankruptcy process by filing a petition in federal bankruptcy in the court jurisdiction where she resides. Other documents are also required, including a schedule of assets, income and liabilities, and statement of financial affairs. A list of all creditors, living expenses and other documents is also necessary. The court clerk sends out notices to all creditors. The notice informs them of the "automatic stay," which prohibits any further attempts by creditors to collect on the debts, including notices, phone calls, repossessions, garnishments or lawsuits. The file is assigned to a court trustee who sets up a meeting with the debtor and creditors.
- The meeting of the creditors (341 meeting) is usually scheduled within 30 to 45 days after the petition filing. Except in cases of fraud or where the debtor fails to cooperate with the court, the debtor's financial obligations are usually "discharged" within 60 to 90 days after the 341 meeting. Chapter 13 filers typically have three to five years to repay their debts.
- Filing for personal bankruptcy in North Carolina will not eliminate all of your debt. Consumers are still required to pay alimony, child support, the majority of student loans and luxury purchases ($550 or more) that were made in the last 90 days, as well as cash advances of $825 within 70 days of bankruptcy filing, fines and penalties levied by governmental entities and fraudulent acquisitions.
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