Each individual who files bankruptcy is entitled to a set of property exemptions, a series of statutory allowances for property that can be protected from creditors. The most important time for the application of these allowances is the moment the bankruptcy petition is filed. As a consequence, that means that choices and actions of the bankruptcy debtor in the period of time immediately before filing can change the extent of protection available for his or her property.
In bankruptcy, exemptions function as property allowances. The various statutory exemptions allow debtors to keep property up to a particular value instead of turning the property over to creditors.
Frequently Asked Questions
Our frequently asked questions also address Exemptions:
It is not uncommon for people to consider bankruptcy after moving into a new state. The move is often a period of starting over, with a new job, new home, and more. Getting relief from past debts might enable getting a clean break from old financial circumstances and start building a new financial life.
The content on this site discusses the North Carolina exemptions at length. The vast majority of bankruptcy cases filed in North Carolina claim exemptions under North Carolina state law.
If a person has resided in North Carolina for the 730 days prior to the date on which the bankruptcy was filed, the person is eligible to claim North Carolina exemptions. The federal bankruptcy exemptions (11 U.S.C. 522(d)) are not available to a resident of North Carolina.
At our firm, we understand that two top concerns for many people considering bankruptcy are (1) keeping their possessions and (2) obtaining peace from worry over debt collection. For most individuals, there are bankruptcy options to keep most types of property.
What property, if any, you will have to turn over to your creditors depends on several factors. First, you are entitled to certain property allowances called exemptions. Most debtors in North Carolina will be able to claim North Carolina statutory exemptions. There are several of these exemptions, but examples would include $35,000 in value for a homestead and $3,500 in value in a car. Furthermore, in a chapter 13 repayment plan, you do not have to turn over property worth more than the allowances if you pay the extra value into the plan from another source, such as future wages.
In bankruptcy, exemptions function as property allowance which enable a debtor to keep property through bankruptcy. Each state has its own exemption under state law, and there are also federal bankruptcy exemptions that are applicable in some situations. There are timing requirements not discussed in this answer, but residents of North Carolina will typically claim North Carolina Statutory exemptions. Several are very frequently claimed, including the homestead exemption, the motor vehicle exemption, the household property exemption, and the wild card exemption.
Exemptions are powerful property allowances that permit many debtors to keep most or all of their property in bankruptcy. However, some exemptions are limited in dollar value and cannot completely protect property from bankruptcy. Fortunately, there are options. Chapter 13 bankruptcy allows debtors to keep their property, paying an amount equal to the non-exempt value of their property over up to 5 years. In some cases, the plan will already require a greater payment amount and keeping the property will add no extra cost.
North Carolina opted out the federal bankruptcy exemptions for its residents, so the state law exemptions are the exemptions applicable for North Carolina residents in bankruptcy.
NCGS 1C-1601(a) is the primary North Carolina exemption statute. Its paragraphs provide the following particular exemptions (the first four are the most common exemptions claimed):
We have discussed Exemptions in the following posts on our bankruptcy blog:
This post is part of our uncommon exemptions series, and discusses the Professionally Prescribed Health Aids Exemption under North Carolina law. A concisely worded exemption, NCGS 1C-1601(a)(7) simply provides for exemption of "[p]rofessionally prescribed health aids for the debtor or a dependent of the debtor." This exemption is one that many people do not need, but those who do need it find it to be quite important.
Social Security retirement benefits and disability benefits enjoy broad protection in bankruptcy. The most commonly used protection for benefits is the fact that social security income is excluded by statutory definition from income available to repay creditors. This means it does not count in the means test for chapter 7 eligibility, and is not considered as income used to determine the amount to repay unsecured creditors in a chapter 13 bankruptcy.
Tax-advantaged college savings plans are a relatively new financial tool, but are used by many families across North Carolina to save for the expense of a college education. If contributions have been made consistently, a 529 plan may have grown to be a substantial asset. For individuals who have come into troubled financial times, the effect bankruptcy may have on these savings can be concerning. Outside of bankruptcy, a desirable feature of a 529 plan is that the contributing parent remains in control of the deposited funds.
A judgment is effective as a lien against all of the judgment debtor's real property in the county of the judgment or any other county where the judgment has been transcribed into the official records. The lien is effective both with respect to property owned at the time of the judgment, as well as property acquired after the judgment. A bankruptcy discharge will void the future application of a judgment, preventing it from attaching to property acquired after bankruptcy. However, a discharge does not itself get rid of an existing judgment lien.
When a personal injury happens, it is often a major event in a person's life. In addition to physical and emotional impacts of an injury, there are frequently financial consequences. With major injuries, an award of compensation may be designed to at least partially relieve a long-term financial burden. For a person owed money in compensation for an injury, that money may be one of the person's most valuable assets. Fortunately for North Carolina residents filing bankruptcy, North Carolina law provides a generous exemption to protect that compensation.
Can I keep my tools or business equipment? For a self-employed person, this is an important question when considering bankruptcy. Keeping your equipment is critical to keeping yourself employed in your trade. Fortunately, North Carolina provides an exemption for tools of the trade. In some cases, this exemption can very helpful for retaining tools, equipment, professional books, and other such items.
The bankruptcy code at 11 USC 104 provides for the periodic adjustments of certain dollar figures in the bankruptcy code every 3 years to account for inflation. The next set of new figures will be effective April 1, 2013. Closer to that date, the courts will publish an official list of changes. However, the Consumer Price Index data needed for the adjustment is now available, so it is possible to predict what these adjustments will be.
The assistance bankruptcy can offer to a person struggling with having his or her wages garnished is not limited to preventing in the immediate future. It's also possible, in some cases, to get the money back from the creditor who seized it. In considering whether this remedy is available, there are two sets of questions: (1) can the transfer be reversed and (2) does the money go back to the person who filed bankruptcy or does it go to the bankruptcy trustee.
This week, we begin a series of blog posts discussing the uncommon exemptions in a North Carolina bankruptcy. As a bit of definition, I am going to use the term uncommon fairly generously. There are also what I would call "exotic exemptions" that few would ever encounter. An example of an exotic exemption is that for a Medal of Honor pension under 38 U.S.C. 1562(c). Instead, we target the several property exemptions are used occasionally, but not to the point of ubiquity.