Who qualifies for Chapter 7
Chapter 7 is meant for people who do not have enough income to repay their debts. To decide who qualifies, the law uses a means test.
- First, your household income for a recent period is compared to the median income for a household of your size in North Carolina.
- If your income is below that median, you generally pass.
- If it is above, a second step looks at your allowed expenses to see whether you could afford to repay some of your debts.
People who do not qualify for Chapter 7 may be able to use Chapter 13. There are also limits on how often a person can receive a bankruptcy discharge, so tell us about any earlier bankruptcy.
How a Chapter 7 case works
- Credit counseling. Before filing, you complete a credit counseling course from an approved provider.
- The petition. We prepare and file your petition and schedules, which list your income, expenses, property, debts, and recent financial history. Everything must be complete and true, and you sign under penalty of perjury.
- The automatic stay. Filing stops most collection, including lawsuits, garnishments, and calls, while the case is open, with some exceptions.
- The trustee. A trustee is appointed to review your case and look for property that is not protected.
- The meeting of creditors. You attend a short meeting where the trustee asks questions under oath. Creditors may attend, though many do not.
- Financial management course. You complete a second course before the discharge.
- The discharge. The court enters an order that releases you from personal liability for debts that can be discharged.
What property North Carolina protects
Exemptions are laws that protect certain property from being sold to pay creditors. People who live in North Carolina generally use North Carolina’s exemptions. In general terms, they may protect:
- Some equity in your home
- Some equity in a vehicle
- Household goods, clothing, and personal items, up to set limits
- Tools you need for your work, up to a limit
- Most retirement accounts
- Certain other property, through a general exemption that can be applied to items you choose
Each exemption has its own limits and rules, and the amounts change from time to time. The value of your property and how it is owned both matter. We will review your property and explain what is protected before you file.
Your house and car in Chapter 7
A secured loan, such as a mortgage or car loan, is tied to property. Bankruptcy can wipe out your personal duty to pay the loan, but the lender’s lien usually stays on the property. If you want to keep the property, you must keep making the payments.
For a car, the main options are usually to keep paying under the existing loan or a reaffirmation agreement, to redeem the car by paying its value, or to surrender it. If you are behind on a mortgage, Chapter 7 does not provide a way to catch up over time. Chapter 13 may be a better fit.
Debts Chapter 7 does not erase
Some debts usually survive a Chapter 7 discharge, including:
- Child support and alimony
- Most student loans
- Many tax debts
- Criminal fines and restitution
- Debts from certain kinds of fraud or intentional harm
- Debts you leave off your schedules, in some cases
A Chapter 7 discharge also does not stop a criminal case. If you are facing charges that involve debts or property, talk with us about both matters together.
Mistakes to avoid before filing
- Do not move money or property to family or friends, or sell property for less than it is worth.
- Do not pay back favored creditors, such as relatives, right before filing without advice.
- Do not run up new credit card debt or take cash advances.
- Do not hide accounts, income, or property. Honesty is required, and hiding assets can be a crime.
- Do not cash out retirement accounts to pay debts that bankruptcy could discharge without getting advice first.
Fees and next steps
We explain our fee in writing before you hire us. We tell clients the hard truth, including when Chapter 7 is not the right choice.
Call (336) 281-2008 or request a consultation online. Bring a list of debts, recent pay stubs, recent tax returns, bank statements, and any lawsuit or garnishment papers. Hablamos español.
We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.
This page is general information about North Carolina law, not legal advice. Every case is different, and no lawyer can promise a result.
Questions people ask us
How long does Chapter 7 bankruptcy take?
It depends on the case. Cases with property to sell or disputes can take longer than simple ones. We will give you a realistic timeline for your case.
Will I lose my house in Chapter 7?
Not necessarily. North Carolina's homestead exemption protects some home equity, and you must keep paying the mortgage to keep the home. If your equity is more than the exemption protects, or you are behind on payments, Chapter 13 may be a better fit.
What is the means test?
It is the test that decides who qualifies for Chapter 7. Your income is compared to the North Carolina median for your household size, and, if needed, your allowed expenses are reviewed. People who do not pass may be able to file Chapter 13.
Do I have to go to court for Chapter 7?
Most people attend a meeting of creditors, where a trustee asks questions under oath, rather than a hearing before a judge. Some cases do need a court hearing. We prepare you for the meeting and attend it with you.