The vast majority of bankruptcies are filed under either
chapter 7 or chapter 13. If you file
bankruptcy, you will need to determine which is the better choice for you.
If you file chapter 7, all of your non-exempt assets will be
sold, and the funds from these sales will be distributed to your
creditors. Your remaining eligible debt from these
creditors is then discharged, giving you a fresh start. You may protect some or all of your assets
from liquidation with your exemptions. In North Carolina, you may exempt:
- Up to $35,000 for equity in a house
- Up to $3,500 for equity for one car
- Up to $5,000 for household items plus $1,000 for
each additional member of your family.
- Up to $2,000 for your “tools of trade”
- If you did not use your house exemption, then up
to $5,000 that can be applied to anything.
- Other exemptions may apply
Some people who file are able to exempt all of their
property, which means they will not pay anything other than the filing fee.
Pros of filing Chapter 7
- Possible to exempt all assets in some cases
- Majority of cases can achieve discharge within
3-4 months of filing
- Attorney fees are typically lower than in
Chapter 13 cases
Cons of filing Chapter 7
- For clients with more assets, may need to
liquidate some assets
- Will not help if behind on secured debts
- Attorney fees must be paid up front.
Chapter 13: Reorganization
If you file chapter 13, instead of your non-exempt assets
being sold, you will pay a monthly amount that will be distributed to your
creditors. After 3-5 years of monthly
payments, your remaining eligible debts are discharged. If you are behind on payments for a secured
debt such as a mortgage or a car loan, then you may “catch up” on payments
through the chapter 13 plan. In addition
to these monthly payments, you will also have to continue making your normal
mortgage and car payments.
Pros of filing Chapter 13:
- Don’t have to liquidate any of your asset
- Can help if you are behind on secured debt
- Most attorney fees are paid through the plan
Cons of filing chapter 13:
- Have to make monthly payments for 3-5 years
- No discharge until all payments are made
- Often more costly than a chapter 7 bankruptcy.
If you are considering filing for bankruptcy, contact the Law Office of Klaus R Johnson for
a free consult to discuss the benefits and drawbacks of chapter 7 & 13.