What is Chapter 7 Bankruptcy and How Do I Qualify in North Carolina?

From the team at Huggins Law Firm, P.C., we want to talk about the “Fresh Start.”

If you are reading this, you are probably feeling buried. The phone calls from creditors never stop. The medical bills are piled on your kitchen table. The stress is overwhelming, and you just want it all to stop.

You are not alone. This is not a personal failure. In our decades of experience, we know that good, hardworking people get into debt for reasons they can’t control: a sudden job loss, a medical crisis from a Personal Injury, or the financial fallout of a Divorce.

Chapter 7 Bankruptcy is the most powerful legal tool to get you that “Fresh Start.” It is designed to do one simple, incredible thing: wipe the slate clean.

This is not a “scam” or an “easy way out.” It is a 100% legal, honest, and responsible way to get your life back from unsecured debts like credit cards and medical bills. It is often the fastest path back to financial health.

This page is your simple guide. We are going to bust the myths, explain the process, and show you how you can get your life back.

Key Takeaways: Your Chapter 7 “Fresh Start”

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

• Chapter 7 Wipes Out Debt: The goal of Chapter 7 is to get a “Discharge” — a federal court order that permanently erases your unsecured debts like credit cards, medical bills, and personal loans.
• You WILL Keep Your “Stuff”: This is the biggest myth! You will not lose your house, your car, or your retirement. North Carolina has “exemption” laws that are specifically designed to protect your necessary property.
• You Must “Pass” the “Means Test”: This is just a test to see if your income is below a certain level. The vast majority of people who need to file, do. We can walk you through this.
• It’s FAST: A typical, “no-asset” Chapter 7 case is usually over in just 4-6 months.
• The “Automatic Stay” is Immediate: The moment we file your case, a federal law stops all collection calls, lawsuits, and wage garnishments. The relief is instant.
• Your Case is Notin a Big Courtroom: You will have one simple meeting called the “341 Meeting of Creditors.” It is not in front of a judge, and we are right there with you.

Who is Chapter 7 Bankruptcy For?

Chapter 7 is the most common and fastest type of bankruptcy. It is for individuals and families who are overwhelmed by “unsecured” debt and do not have enough “disposable income” to pay it back.

“Unsecured” debt just means debt that is not tied to a piece of property. The most common examples are:

• Credit Card Debt
• Medical Bills (a huge reason many of our Personal Injury clients need help)
• Personal Loans / Payday Loans
• Old Utility Bills
• Gym Memberships

Chapter 7 is designed to wipe all of that out, tax-free.

This is different from a Chapter 13 Bankruptcy, which is a 3-to-5-year payment plan for people who are trying to catch up on a house or car payment.

How Do I Qualify? The North Carolina “Means Test”

This is the first hurdle. You don’t just “choose” Chapter 7. You have to “qualify” for it by passing something called the “Means Test.”

This sounds scary, but it’s just a simple, two-step formula.

Step 1: The “Median Income” Test

The very first thing we do is look at your average household income for the last six months. We then compare that number to the “median income” for a family of your size in North Carolina.

• If your income is BELOW the median: You pass! It’s that simple. You qualify for Chapter 7.
• If your income is ABOVE the median: Do not panic! This does not mean you “fail.” It just means we have to go to Step 2.

Step 2: The “Disposable Income” Test

If you are “above median,” we now get to subtract all of your allowed monthly expenses. This includes:

• Your actual mortgage or rent payment
• Your actual car payment
• Health insurance and medical costs
• Taxes and childcare
• Standard, IRS-set amounts for food, utilities, and clothing

After we subtract all of these “allowed” expenses, we look at what’s “left over.” If there is not enough “disposable income” left to pay back a meaningful amount to your creditors… you stillpass the test and can file Chapter 7.

This test is very complex. A small math error can get your case thrown out. This is one of the most important reasons to have an experienced bankruptcy lawyer who knows exactly which deductions you are legally allowed to take.

The “Liquidation” Myth vs. North Carolina “Exemptions”

This is the #1 fear that stops people from getting help.

“I can’t file Chapter 7. It’s ‘liquidation.’ They will send a truck to my house and sell everything I own.”

This is 100% false. This is not what happens.

Yes, Chapter 7 is technically a “liquidation” bankruptcy. But that only applies to “non-exempt” property.

So, what is “exempt” property?

“Exemptions” are laws that protect your stuff. Think of them as a “shield” you can put around your property, up to a certain dollar amount. The Trustee cannot take or sell “exempt” property.

Here’s the great news:

In over 90% of the Chapter 7 cases we file, all of our client’s property is 100% “exempt.”

This is called a “no-asset” case. It means you keep everything you own, and you still get to wipe out all your debt.

A Simple Guide to Your North Carolina “Exemptions” (How You Keep Your Stuff)

North Carolina is a state where you must use the state’s exemptions. (You cannot “choose” the federal ones).

Here are the most common exemptions we use to protect our clients’ property.

• The Homestead Exemption: (N.C. Gen. Stat. § 1C-1601(a)(1)). This is for your house. This law shields $35,000 of “equity” (value) in your home. If you are married and file together, you can double this to $70,000.
• The Motor Vehicle Exemption: This law shields $3,500 of equity in one car.
• The “Wildcard” Exemption: This is a “secret weapon.” This law gives you a “catch-all” exemption of $5,000 that you can “use” on any property you want.
  • How we use it: Let’s say your car has $8,000 of equity. We use the $3,500 car exemption, and then we “stack” your $5,000 wildcard on top. Your $8,000 of equity is now 100% protected.
• Retirement Accounts: Your 401(k)s and IRAs are 100% protected by federal and state law. We never have to touch them.
• Household Goods: This shields $5,000 (plus $1,000 per dependent) for your furniture, clothes, TV, etc.
• Tools of the Trade: This shields $2,000 in tools you need for your job.

Let’s see this in action:

• You have a home with $25,000 of equity. (It’s less than the $35,000 exemption. It is 100% safe.)
• You have a car with $3,000 of equity. (It’s less than the $3,500 exemption. It is 100% safe.)
• You have a 401(k) with $50,000 in it. (It is 100% safe.)
• You have furniture and a bank account with $1,000. (We use the household goods and wildcard exemptions. It is 100% safe.)

In this very common scenario, you keep all of your property… and you wipe out all $50,000 of your credit card and medical debt.

That is the power of a Chapter 7.

The Chapter 7 Process: A Simple 5-Step Timeline

When you’re searching for the “best bankruptcy lawyer near me” in Greensboro or Burlington, you want someone who can give you a clear map. Here is the map.

• Step 1: Credit Counseling (Before We File). The law requires you to take a brief, simple online credit counseling course. It’s easy, and we will guide you.
• Step 2: We File Your Case! (The “Automatic Stay”). Our team prepares and files your “Petition” with the federal court. The second we file, the Automatic Stay (our Pillar Page) goes into effect, and all your creditors are legally forbidden from contacting you. The phone calls stop.
• Step 3: The “341 Meeting of Creditors.” This is the part that scares people, but it shouldn’t.
  • It is NOT in a courtroom.
  • It is NOT in front of a judge.
  • It is a simple, 10-minute meeting in a small room with a person called the “Bankruptcy Trustee.”
  • We will be right there with you. The Trustee will ask you simple “yes or no” questions about your paperwork. In 99% of cases, no creditors even show up.
• Step 4: Financial Management Course (After the Meeting). You have to take a second simple, online “debtor education” course.
• Step 5: Your “Discharge” (The “Fresh Start”!). About 60-90 days after your 341 meeting, the judge will sign your “Discharge Order.” This is the final, magic paper. It is the federal court order that officially wipes out your debts.

That’s it. In as little as 4-6 months, you are 100% debt-free and on your way to a new financial life.

What is the Role of the Bankruptcy Trustee?

This is a key point of confusion. The Trustee is not your lawyer. They are not the judge.

The Chapter 7 Trustee is a lawyer appointed by the court to administer your case.

Their job is simple:

1. To review your paperwork to make sure it is honest and accurate.
2. To run the 341 Meeting and ask you questions under oath.
3. To see if you have any “non-exempt” property (that rare boat or second home) that they can sell to pay back your creditors.

We have worked with the local Trustees in the Middle District of North Carolina (which covers Greensboro, Winston-Salem, etc.) for years. We know exactly what they look for, and we prepare your paperwork perfectly to make this process as smooth and fast as possible.