Bankruptcy is a federal law which permits people to get protection from their creditors in order to get a "fresh start" and preserve their assets. Some bankruptcy cases are reorganization cases, which restructure debt and permit repayments, and some cases are liquidation cases, which eliminate the debt and allow retention of a certain amount of property.
Chapter 7 is a liquidation case, which discharges all the debtor's debt, with some exceptions. A trustee of the court is appointed to liquidate the debtor's property and to take the money and pay it to the creditors. The debtor is allowed to keep that property which falls under the limits provided by the North Carolina State Homestead Exemption. Creditors who hold liens on the debtor's property continue to hold those liens, and will have to be paid or be permitted to repossess their collateral.
Chapter 13 is a reorganization case, in which the debtor makes a monthly payment to a bankruptcy trustee over a period of three to five years, at which time the debtor receives a discharge of debt. A Chapter 13 case works best for debtors who would lose something with a Chapter 7 straight bankruptcy, since the debtor in the Chapter 13 case gets to retain all of his or her property.
Each case is different depending on the amount and type of debt, the value of assets, and the client's objectives. The only way to get a complete answer is to review all of the facts with the bankruptcy attorney.
There are no eligibility requirements for filing bankruptcy, although generally speaking anyone who cannot pay his or her bills as they fall due is a candidate for bankruptcy. With some exceptions, the fact that you filed bankruptcy in the past will not keep you from filing bankruptcy now.
In a Chapter 13 or a Chapter 11 case, you are allowed to keep all of your property, since you are repaying the creditors under a court approved plan. In a Chapter 7 case, you may keep all property which is exempt under the North Carolina Homestead Exemption, as well as that property which has liens which you are paying.
The North Carolina Homestead Exemption provides that a debtor may keep $35,000. in equity in real estate which serves as the residence, $3,500 in value in a motor vehicle, $5,000 in household goods, and an additional $5,000 in other property depending on how much is claimed in residential real estate. The amounts are doubled if a husband and wife file bankruptcy together, and certain other types of property may also be exempt.
In a Chapter 13 reorganization case, usually the secured creditors are provided for in the debtor's plan, and are paid with the money deposited with the Chapter 13 Trustee. In a Chapter 7 case, the secured creditors are paid directly by the debtor, unless the debtor decides to allow the creditor to repossess the property.
There is nothing worse that you can do to your credit than filing a bankruptcy case. For most people, their credit is already bad due to pending foreclosures and repossessions. A bankruptcy will not improve your credit, although it does provide a way of managing debt so that credit, over time, may be improved.
Many, many bankruptcies are filed to stop foreclosures. So long as the bankruptcy petition is filed before the day the real estate is sold, and in some cases within 10 days thereafter, the foreclosure can be stopped. Bankruptcy can also stop a repossession. A court order is entered automatically upon filing of the bankruptcy case which prohibits creditors from taking any action to collect their debts, including repossessions.
Filing bankruptcy is like filing any other legal action, and is a matter of public record. On the other hand, very few, if any, newspapers publish bankruptcy filings, and the only people who will be contacted about the bankruptcy directly will be the ones to whom you owe money.
The bankruptcy case begins and ends, in many ways, on the day that it is filed. That is the day that the relief from creditors begins, and it is the established date for determination of assets and debts. The bankruptcy "fresh start" is effective as of the day the bankruptcy is filed.
In all cases, the debtor is required to meet informally with the bankruptcy trustee. This meeting usually takes no more than five minutes and unless there are some problems in the case, this will be the only time the debtor is required to attend any court hearings or appear anywhere.