What is a Chapter 7 Bankruptcy?

If your bills are going unpaid and your debts are mounting up, or if you’re receiving rude calls at all hours from debt collectors, you may wonder if bankruptcy is the answer for you. You can get the insights you need by discussing your situation with a North Carolina bankruptcy attorney.

For some people who are facing overwhelming debts in this state, bankruptcy is the only practical option, but is bankruptcy the right choice for you? A North Carolina bankruptcy lawyer can examine your financial situation and help you make the right decisions.

If you have never filed for bankruptcy, some definitions may be helpful. A personal bankruptcy is usually a “Chapter 7” or “Chapter 13” bankruptcy. Chapters 13 and 7 are two of the chapters in the U.S. Bankruptcy Code, the federal laws that govern bankruptcy in the United States.

What Should You Know About Chapter 7 Bankruptcies?

Most people who file for personal bankruptcy prefer to file a Chapter 7 bankruptcy. This eliminates all of a person’s unsecured debts including credit card debt, unsecured loans and medical debt, as well as eliminates some IRS and state tax debt if it meets certain criteria.

More than 225,000 Chapter 7 bankruptcies were filed in the United States in 2022. However, not everyone who needs to file for bankruptcy will qualify under Chapter 7.

What is required for a Chapter 7 bankruptcy, who qualifies, and how does a Chapter 7 bankruptcy differ from a Chapter 13 bankruptcy? The most important difference is that you must pass a means test in order to file for bankruptcy under Chapter 7.

What is the Purpose of the Chapter 7 Means Test?

The means test prevents persons with a high income from qualifying for a Chapter 7 bankruptcy. Those individuals may file for a Chapter 13 bankruptcy, but under Chapter 13, they have to repay a portion of their debts, while a Chapter 7 bankruptcy entirely erases someone’s unsecured debts.

However, if your expenses are sizable, you may still be allowed to file for a Chapter 7 bankruptcy even though your monthly income is also quite sizable.

How Does the Means Test Work?

The means test was established to limit Chapter 7 bankruptcies solely to those who cannot pay any of their debts. The means test determines someone’s disposable monthly income. The higher that figure is, the more likely it is that person will not qualify for bankruptcy under Chapter 7.

The first part of the means test indicates whether your income is above or below the North Carolina median income. If your income surpasses the median income for your household size in the county you live in, the test then determines if you have adequate disposable income to pay a portion of your debts.

What Are the Median Incomes in North Carolina?

Median incomes in North Carolina are calculated annually. As of November 2023, the annual median incomes for North Carolina households are:

  1.  for one-person households: $59,367
  2.  for two-person households: $75,315
  3.  for three-person households: $86,408
  4.  for four-person households: $105,257
  5.  for five-person households: $115,157
  6.  for six-person households: $125,057

{The above annual median income may vary from county to county throughout the state of North Carolina based upon population and median income in those counties}

Is a Chapter 7 Bankruptcy Right for You?

Satisfying the income requirement for Chapter 7 does not necessarily mean that you should file for bankruptcy under Chapter 7. It only means that you can. And if a Chapter 7 bankruptcy is right for you, satisfying the income qualification is only the first of several requirements.

If your household income exceeds the median income, and if your “disposable” income is adequate to pay at least a portion of your unsecured debts, you will probably be disqualified for bankruptcy under Chapter 7. Your remaining option is filing for a Chapter 13 bankruptcy.

Resolving your debts begins when you schedule a consultation with a North Carolina bankruptcy attorney. After meeting with you and reviewing your situation, your attorney may recommend a Chapter 7 bankruptcy, a Chapter 13 bankruptcy, or an option that doesn’t involve bankruptcy.

How Can Bankruptcy Help You?

Upon filing for bankruptcy, the court issues an automatic stay. It’s a court order that stops creditors from pursuing you for credit card debt, medical debt, and most other consumer debt. Automatic stays stop wage garnishments, foreclosures, repossessions, and lawsuits brought by creditors.

However, when you file for bankruptcy under Chapter 7 you need to determine if your assets such as your home, vehicles, boats, tools etc… are protected and not subject to being sold by the chapter 7 trustee. This analysis is performed by a North Carolina bankruptcy attorney to properly protect those assets.

At the end of the bankruptcy process, the court discharges your unsecured debts. However, you may still owe debts – for taxes, child support, or a student loan, for example – that are not discharged in the Chapter 7 bankruptcy process.

Do You Need a Fresh Financial Start?

If you need the protection that bankruptcy offers, don’t wait another day. Bankruptcy laws can be quite confusing, so you must have bankruptcy advice and guidance from a reliable North Carolina bankruptcy lawyer.

Bankruptcy is the legal and responsible way to gain a financial “clean slate” and a fresh financial start, but the bankruptcy process is not easy. Filing for bankruptcy is almost always someone’s last resort.

Nevertheless, with the right lawyer’s help, bankruptcy is nothing to fear. You will emerge from the bankruptcy process with a clean financial slate. You’ll be allowed to reestablish your credit and move positively and constructively into the future.

Gillespie & Murphy Offers the Reliable Help You Need

For more than three decades, the legal team at Gillespie & Murphy has been providing bankruptcy advice, guiding clients through the bankruptcy process, and helping clients understand their options for resolving their debts.

Our award-winning attorneys help North Carolina families and individuals who are dealing with foreclosure, repossession, a wage garnishment, or other debt-related legal matters. If a Chapter 7 bankruptcy is right for you, let Gillespie & Murphy handle the paperwork and guide you through the process.

We have offices throughout Eastern North Carolina. Before you make the decision to file for bankruptcy, call Gillespie & Murphy at 252-659-5045 for a no-cost, no-obligation legal consultation. We will determine the best way to resolve your debts and help you with a fresh financial start.