What Do I Need to Know Before Filing for Bankruptcy in North Carolina?

From the team at Huggins Law Firm, P.C., we want to start by saying one simple thing: you are not a bad person.

If you are on this page, you are likely in one of the most stressful, terrifying, and isolating times of your life. You are buried in debt. The phone rings off the hook with creditors. You are afraid of losing your house or your car. You feel like you have failed.

We want to tell you, from decades of experience, that this is not a personal failure. It is almost never about “bad spending.”

Life happens. The vast majority of bankruptcies we see are caused by three things:

1. A Job Loss.
2. The financial fallout of a Divorce or Separation.
3. A sudden medical crisis from a Personal Injury.

In fact, a 2024 study by KFF (a leading health policy group) found that 20 million people in the U.S. have medical debt of over $250, with 14 million owing $1,000 or more. (Source: KFF.org). You are not alone.

Bankruptcy is not a “punishment.” It is a legal tool that was put into federal law to give good, hard-working people like you a second chance. It is a powerful, responsible, and honest way to get a fresh start.

This page is your complete, plain-English guide. We are going to bust the myths, explain the “magic,” and show you the map to get your life back.

Explore Your Paths: A Deeper Dive Into Your “Fresh Start” Options

Bankruptcy is not a “one-size-fits-all” solution. It is a set of different legal tools, and each one is designed for a very specific problem. The “best” path for your neighbor in Greensboro might not be the “best” path for you in Winston-Salem.

The most important step is understanding your options. Our job as your lawyers is to be your guide, to look at your entire financial picture, and to help you choose the one tool that will give your family the best possible “fresh start.”

Below, we’ve created a series of in-depth guides on the most common paths you can take.

Chapter 7 Bankruptcy: The “Fresh Start”

This is the path most people think of as the “Fresh Start.” It’s a powerful tool designed to completely wipe out your unsecured debts, like credit cards, medical bills, and personal loans, often in just a few months. It’s designed to give you a clean slate.

But does everyone qualify? What is the “Means Test” really? What happens to your house and car? We provide a deep dive into the most common form of bankruptcy.

Learn More About Chapter 7 Bankruptcy in NC

Chapter 13 Bankruptcy: The “Reorganization Plan”

What if you don’t want to just “wipe out” debt? What if you have a good job, but a medical crisis or a job loss put you behind on your house or car payment?

This is the “Reorganization” path. It’s a powerful legal tool that lets you stop foreclosure and stop repossession. It allows you to “catch your breath” and reorganize your debts into one, affordable 3-to-5-year payment plan. As long as you make the payments, your home is safe.

How does the payment plan work? Can it really save your home? Can it even “strip” a second mortgage? We explain it all here.

Discover How Chapter 13 Can Stop Foreclosure

Chapter 11 for Small Businesses (Subchapter V)

Bankruptcy isn’t just for individuals. We have a deep understanding of the tools available to small business owners in our community. When you hear “Chapter 11,” you probably think of giant airlines.

But a newer law, called “Subchapter V,” has made Chapter 11 a faster, cheaper, and more powerful tool specifically for small businesses. It is not a “liquidation.” It is a “reorganization” designed to help you keep your doors open, restructure your debt, and get back to being profitable.

Find Out How We Can Help Your Small Business

Life After Bankruptcy: How to Rebuild Your Credit

This is the question everyone asks: “What happens after?” Is your credit ruined for a decade?

The answer is no. Rebuilding is not only possible; it’s expected. Your “fresh start” is only as good as what you do next. You will get offers for credit cards and car loans again, often within a year. But you need a plan. We’ve created a simple, step-by-step guide to help you rebuild your credit and your financial life, starting from Day

Read Our Guide to Rebuilding Your Credit After Bankruptcy

Are There Alternatives to Bankruptcy? (An Honest Look)

This is the most important part of our job as your lawyers. We are not a “bankruptcy mill.” We are your advisors. And sometimes, bankruptcy is not the best option.

What about “debt negotiation” companies? What are the real risks of “debt consolidation” loans? (Here’s a hint: They can have huge, hidden tax traps.)

We will give you the honest, unvarnished truth about all your options—the good, the bad, and the ugly—so you can make the best, most informed decision for your family.

Compare Your Options: Bankruptcy vs. Debt Negotiation

Key Takeaways: Your “Fresh Start” Cheat Sheet

We know you’re stressed. If you only read one part, read this:

• It is NOT a “Failure.” Bankruptcy is a legal tool designed to help good people recover from a job loss, medical debt, or a divorce.
• The “Automatic Stay” is Your “Magic Wand.” The moment we file your case, all collection calls, foreclosures, repossessions, and wage garnishments must legally stop.
• You Will NOT “Lose Everything.” This is the biggest myth. North Carolina “exemptions” are laws specifically designed to protect your house, your car, your retirement, and your personal property.
• Your Credit is NOT “Ruined Forever.” Your credit can, and will, recover. Most people are in a better position to get new credit (like a car loan or mortgage) 1-2 years after filing.
• There Are Two Main Paths: Chapter 7 (“The Fresh Start”) aims to wipe out debts like credit cards and medical bills. Chapter 13 (“The Reorganization”) is a payment plan to catch up on your house or car.
• The “Means Test” Decides Your Path: This is just a test that looks at your income and expenses to see which Chapter you qualify for.
• You Need a Guide: This is a complex legal process. Our firm has decades of experience in bankruptcy and all the related issues, from Divorce to Criminal Law. We see the whole picture.

What is the “Automatic Stay”? (And How Can It Stop Creditors NOW?)

This is the “magic wand” of bankruptcy law. It is the #1 reason most people feel instant relief.

The moment our law firm files your bankruptcy petition with the court, a federal law called the “Automatic Stay” goes into effect.

It is not a request. It is not a suggestion. It is a powerful federal court order that acts like an immediate shield. It legally stops all your creditors in their tracks.

The Automatic Stay STOPS:

• Foreclosure on your home.
• Repossession of your car.
• Wage Garnishments.
• Creditor Lawsuits.
• Harassing Phone Calls.
• Collection Letters.

It stops. Period.

If a creditor knowingly tries to contact you or collect a debt after we file, they are in violation of a federal court order, and we can ask a judge to punish them. For so many of our clients, the first night after we file is the first night they have slept peacefully in years.

Busting the 3 Biggest Bankruptcy Myths

When you are searching for the “best bankruptcy lawyer near me,” you are also fighting against a lifetime of misinformation. Let’s bust the three biggest myths right now.

Myth #1: “I will lose my house, my car, and all my stuff.”

This is the single biggest, most damaging myth. The goal of bankruptcy is to give you a fresh start, not to leave you homeless and on the street.

The law has “exemptions.” Think of these as a “shield” you can put around your property. North Carolina has its own set of exemptions (and you can sometimes use the federal ones) that are designed to protect the things you need to live.

These exemptions protect:

• A large amount of equity in your home (your “homestead”).
• A certain amount of value in your car.
• 100% of your retirement accounts (like your 401(k) or IRA).
• Your household goods, clothes, and tools for your job.

In our decades of experience, the vast majority of people who file for Chapter 7 bankruptcy keep their house and their car.

Myth #2: “My credit will be ruined forever.”

This is 100% false. In fact, for most people we see, their credit is already in bad shape from missed payments, high balances, and collections.

Think of it this way: which person is a better risk for a new loan?

• Person A: Drowning in $50,000 of credit card debt they can’t pay.
• Person B: Just filed Chapter 7, has zero credit card debt, and a “fresh start.”

It’s Person B!

A bankruptcy does stay on your report for 7-10 years. But your score starts to rebuild immediately. Many people can get a car loan or new credit cards within months of their case finishing. And according to legal resources like FindLaw (a neutral source), many filers can even qualify for a mortgage (like an FHA loan) within 1-2 years of filing.

Myth #3: “I am a bad person for filing.”

This is a failure of the system, not a failure of you. You did not ask to get sick. You did not ask to get in a

car accident. You did not ask for your company to lay you off.

Bankruptcy is a legal tool that was put in the U.S. Constitution. It was signed into law to give people an honest and responsible way to deal with debt they simply cannot pay. It is not a “scam” or “cheating the system.” It is using the system exactly as it was designed.

Which Path is Right for Me? Chapter 7 vs. Chapter 13

When you file for personal bankruptcy, you are usually choosing between two main “paths.” Our job as your lawyers is to be your guide and help you choose the path that is best for your goals.

Chapter 7: The “Fresh Start” (Wipe the Slate Clean)

• What it is: This is the most common type. Think of this as the “wipe the slate clean” option.
• Who it’s for: This is for people who are buried in “unsecured” debt (like credit cards, medical bills, or personal loans) and do not have a lot of extra income.
• The Goal: The goal of a Chapter 7 Bankruptcy (a page we are building) is to get a “discharge”—a court order that legally erases those debts. Forever.
• How long it takes: A “no-asset” Chapter 7 case is usually very fast, often finishing in just 4-6 months.

Chapter 13: The “Reorganization” (Catch Your Breath)

• What it is: This is not a “wipe-out.” This is a “payment plan.”
• Who it’s for: This is a powerful tool for people who have a steady income but are behind on their house or car payment.
• The Goal: The goal of a Chapter 13 Bankruptcy (another page we are building) is to stop a foreclosure or repossession. It lets you take all your “past-due” payments and spread them out over a 3-to-5-year period. You make one, affordable monthly payment to a trustee. As long as you make the payments, you are protected.
• The “Pro-Tip”: Chapter 13 can also “strip” (remove) a second mortgage in some cases.

How Do I Know Which Chapter I Qualify For? (The “Means Test”)

This is a big source of confusion. You don’t always get to “choose” your chapter. Congress created a formula called the “Means Test” to see who can file Chapter 7.

It’s not as scary as it sounds. In simple terms, it’s just a test that looks at your income, family size, and expenses.

1. Step 1: We compare your average household income to the “median income” for a family of your size in North Carolina.
2. If you are below the median, you “pass” and can almost always file Chapter 7.
3. If you are above the median, we do a “Step 2.” We start subtracting all of your “allowed” expenses (like your mortgage, car payments, taxes, and healthcare costs).

If you still have money “left over” after paying your necessary bills, the law says you must file a Chapter 13 and pay some of that back to your creditors. If you don’t have money left over, you can still file a Chapter 7.

This test is very complex and full of traps. This is one of the main reasons you must have an experienced bankruptcy lawyer. A small mistake on this form can get your entire case thrown out.

What About My Small Business? (A Solution for Business Owners)

This is a key area of our firm’s experience. What if you’re a small business owner in Greensboro, and your business is in debt?

• If you are a “sole proprietor” (you and the business are one and the same), your business debts are just your debts. A personal Chapter 7 or 13 can wipe them out.
• If you have an LLC or Corporation, this is where Chapter 11 Bankruptcy (a future page) comes in.

When you hear “Chapter 11,” you think of giant airlines. But there is a new, powerful tool for businesses like yours. It is called “Subchapter V” of Chapter 11. It is a faster, cheaper, and simpler Chapter 11 designed specifically for small businesses. It lets you “reorganize” your debt, keep your doors open, and get back to being profitable. It is an amazing tool that most people don’t know about.

What Debts Can I Actually Get Rid Of?

Bankruptcy is powerful, but it is not a “magic wand” for every kind of debt. It is very important to be honest about what it can and cannot do.

Debts that are “Dischargeable” (The “Good” Pile):

• Credit Card Debt
• Medical Bills (This is the #1 reason for many Personal Injury clients!)
• Personal Loans / Payday Loans
• Old Utility Bills
• Old Income Taxes (This is complex, but some old tax debt can be discharged!)

Debts that are “Non-Dischargeable” (The “Bad” Pile):

• Child Support or Alimony: This is never dischargeable.
• Most Student Loans: This is very, very difficult. You must pass a separate, very hard test to discharge these.
• Recent Tax Debts
• Debts you got by fraud.
• Debts from a DWI or Criminal act.

Even if your main debt (like child support) can’t be wiped out, a bankruptcy can be a huge help. By wiping out all your other debts (like credit cards), it frees up the money you need to pay the debts that won’t go away.

Are There Alternatives to Bankruptcy? (An Honest Look)

Yes. And as your advisors, it is our job to tell you about them. You may be searching for “bankruptcy alternatives” or the “best debt consolidation” program. Here is the honest truth about those options.

• Debt Consolidation: This is just a new loan. You are just “moving” your debt from 10 credit cards to one big, new loan. You still owe all the money, plus interest.
• Debt Negotiation/Settlement: This is what you hear on the radio. “Pay pennies on the dollar!”
  • The Risk: These programs are risky. They tell you to stop paying your bills (which kills your credit) and put money in a “savings account.” Then, they try to “negotiate” with your creditors.
  • The “Gotcha”: It is not a legal process. A creditor can refuse to negotiate and sue you anyway.
  • The “Tax Bomb”: If they do “forgive” $10,000 of your debt, the IRS can treat that $10,000 as “income,” and you will get a tax bill for it.

Why Bankruptcy is Often a Safer Choice: Bankruptcy is a legal, final process protected by a federal judge.

• It legally forces all your creditors to stop.
• A “discharge” is 100% final.
• A “discharge” is 100% tax-free.

Sometimes, these alternatives (a future page) are the right choice. But you must talk to an experienced lawyer to understand the huge risks.

Why Our Firm is Uniquely Able to Help

A financial crisis is rarely just about debt. It is a symptom of a larger life event. This is where the team at Huggins Law Firm is uniquely positioned to help your family. We are not a “bankruptcy mill” that only knows one thing. We are a full-service law firm for families in North Carolina.

• Are you filing for bankruptcy because of a Divorce? Our team can handle both cases. We know how your divorce settlement will directly affect your bankruptcy, and vice-versa.
• Are you filing because of a Personal Injury? We can handle your injury case, and our bankruptcy team can protect your settlement money from creditors.
• Is your debt from a past Criminal Charge? We know exactly which fines can (and cannot) be discharged.

We see the whole picture. You do not need two or three different law firms that don’t talk to each other. You just need one team that understands how all these pieces fit together.

Serving Families in Greensboro, Winston-Salem, and Across the Triad

When you are in a financial crisis, you are probably searching for the “best bankruptcy lawyer near me.” You are looking for a local team that understands your community. Our firm is proud to be a part of the Triad. We are in the local federal bankruptcy court. We know the local trustees and the local rules.

We are here to help families in:

• Greensboro
• Winston-Salem
• High Point
• Burlington
• Graham
• Asheboro
• Kernersville
• …and all the surrounding communities.

You do not have to drive to a big, “out-of-town” firm. We are right here, ready to help.