How Chapter 7 works

Chapter 7 deals with debt by selling off most of your property and dividing the proceeds among your creditors. The law provides several exemptions, allowing you to keep a house, car and personal property below a particular value.

This is known as a bankruptcy exemption, which determines which assets you can keep during the bankruptcy process. You may be able to keep secured property by signing an agreement to keep paying the debt on it even after the discharge of the rest of your debts. The entire process typically takes between three and six months.

You may not file a Chapter 7 petition until at least six years have passed since your last one. To petition, you need an income under a legal standard, which usually falls around the state’s poverty line.

Eligibility for Chapter 7 is determined by the means test, which compares your household income and current monthly income to the state median; restrictions on disposable income apply, and you may need to show special circumstances to pass the means test if your income is above the threshold.

If you have nonexempt property or nonexempt assets, the bankruptcy trustee is responsible for selling nonexempt property to pay creditors; in Chapter 7, the trustee may sell nonexempt property as part of the process.

Chapter 7 allows for the discharge of dischargeable debts, which are qualifying debts such as unsecured debts, general unsecured debts, unsecured debt, and debts owed to unsecured creditors. This includes credit card balances, medical bills, personal loans, and some other debts, while certain obligations like child support and recent taxes are not dischargeable.

Chapter 7 is a bankruptcy liquidation reorganization process, specifically a liquidation bankruptcy, and both business entities and individuals can file for Chapter 7.

How Chapter 13 Bankruptcy Works

Chapter 13, on the other hand, is a repayment plan. Chapter 13 is a reorganization bankruptcy designed for wage earners and sole proprietors with regular income. The trustee adds up your debts and comes up with a three-to-five-year repayment plan.

The repayment period involves making plan payments and monthly payments, and the court approves the plan before it goes into effect. Once the plan is complete, it discharges the remainder of your debt. The chief advantage of a Chapter 13 proceeding is that you get to keep secured property that North Carolina’s Chapter 7 exemptions do not cover.

Chapter 13 allows you to address secured debts and secured debt, enabling you to catch up on missed mortgage, due mortgage payments, mortgage arrears, and mortgage payments to avoid foreclosure and halt foreclosure proceedings.

Lien stripping may be available in Chapter 13, allowing you to remove certain junior liens from real property and potentially reduce the principal loan balance.

When considering eligibility, how much property you own and whether you have a significant amount of equity can affect your eligibility and the structure of your repayment plan.

In order to qualify for a Chapter 13, you need enough regular disposable income to make payments every month. Disposable income is the money you have left over after you pay for life necessities such as rent, food and transportation. North Carolina also has an upper limit on how much you can owe when you file a Chapter 13 petition.

The bankruptcy trustee collects your payments and distributes them to creditors according to the payment plan. The trustee is responsible for ensuring that you pay unsecured creditors and repay creditors as required by the plan. If you retain nonexempt property or nonexempt assets, you must pay their value to unsecured creditors through the plan.

Chapter 7 or Chapter 13 Bankruptcy

Your financial situation is important in determining which bankruptcy chapter is appropriate for you. Filing bankruptcy or a bankruptcy filing can be complex, and a bankruptcy attorney can guide you through the process, often starting with a free consultation. Be aware of legal fees and other costs associated with bankruptcy.

The bankruptcy court plays a key role in approving repayment plans and resolving disputes, including those involving property settlement obligations, child support, and child support payments. Child support and some other debts are not dischargeable in bankruptcy.

Throughout the bankruptcy process, creditors, those to whom you owe money, play a central role, and the process is designed to ensure that debtors pay creditors as required. The relationship between creditors and debtors, and the obligation to pay creditors, is central to both Chapter 7 and Chapter 13.

If you are considering individual bankruptcy, be aware that the process and requirements differ from joint filings with a spouse.