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Chapter 7

Chapter 7 bankruptcy is commonly referred to as “straight bankruptcy” as it is designed to discharge most debts and “wipe the slate clean,” thereby providing the debtor with a fresh start. This is the simplest form of bankruptcy where some exempt property is retained (kept) by the debtor and any other property is sold to pay debts. Most consumer debt is discharged at the end of a three to six month process.

Requirements to Qualify for Filing

  • Must pass means test – This is a simple concept but often requires a complex set of calculations. Basically, if your income is high enough that you have the ability to pay your debts, you will not be allowed to file for Chapter 7 bankruptcy.
  • No Chapter 7 discharges in the last 8 years.
  • No Chapter 13 discharges in the last 6 years.
  • Within 180 days prior to filing, each debtor must have completed credit counseling through an approved agency and present a certificate of completion
  • If there was a previous petition dismissed within the past 180 days for debtor’s willful failure to appear before the court and comply with orders, a chapter 7 petition cannot be filed

Advantages

  • An unlimited amount of debt may be discharged.
  • Both state and federal exemptions allow the debtor to keep some property.
  • Upon filing of the petition, an automatic stay goes into effect thereby halting foreclosure and other debt collection activities, including harassing phone calls from creditors. Note, however, that foreclosure action may recommence if debtor is not able to quickly become current. If additional time to catch up is needed, a Chapter 13 filing may be required.
  • From filing to discharge, the process is usually completed in about 4 to 6 months.

NC Exemptions

Exempt property is that which the debtor is allowed to keep when filing a Chapter 7 petition. Keep in mind that if you are retaining property, you will need to keep making those payments. If you have lived in NC for 730 days prior to filing the petition, NC exemptions will apply to your case. If not, either another state’s exemptions or the federal exemptions will apply. Here are the most common NC exemptions:

  • Primary residence if no more than $35,000 in equity ($70,000 if joint spousal petition). If the debtor is age 65 or older and a widow/widower, $65,000 equity is allowed if the residence was previously owned by the spouses as tenants by the entirety
  • One vehicle with up to $3500 equity
  • Household goods of up to $5000 plus an additional $1000 worth of goods for each dependent up to 4. Note: this value is based on what you could sell the item for today, not replacement cost.
  • Additional $5000 exemption to be used for anything if not all of the primary residence exemption was used
  • Life insurance cash value is exempt if the policy is on the life of the debtor and the beneficiary is the spouse or children.
  • Health aids such as a wheelchair, hearing aids, etc. are exempt – unlimited value.
  • IRAs and 401K accounts are exempt – unlimited value.
  • 529 College Savings Accounts are exempt with certain limitations
  • VA and Social Security benefits are exempt.
  • Wages and salary received within 60 days of filing are exempt.
  • Alimony and child support payments received are exempt.
  • Other real estate is exempt if owned by tenants by the entirety and the creditor only has a claim against one spouse.

Note: If the debtor wishes to obtain property in excess of allowable exemptions, Chapter 7 may not be appropriate. Rather, a Chapter 13 filing should be considered.

Federal Exemptions

If you have not been domiciled in NC for the past 730 days and you are not eligible to use another state’s exemptions, your Chapter 7 exemptions will be based on the federal statute. Following are the most common federal exemptions:

  • Primary Residence if no more than $23,675 in equity
  • One vehicle with equity up to $3775
  • Household furnishings, household goods, etc. up to $12,625 ($600 limit on any one item)
  • Jewelry up to $1600
  • Professional books, tools up to $2375
  • Unmatured life insurance policies owned by the debtor are 100% exempt
  • Accrued dividends or loan value of any unmatured life insurance policy up to $12,625
  • Professionally prescribed health aids are exempt – unlimited value
  • Veterans’ benefits, social security, unemployment benefits are exempt – unlimited value
  • Alimony is exempt
  • Wildcard Exemption – applies to any property $1250 plus up to $11,850 of unused residence exemption

Non-Dischargeable Debts Under Chapter 7

Although most types of debt are dischargeable under Chapter 7, there are certain categories of debt that are not discharged under Chapter 7. If a debt is not discharged, even after your bankruptcy case is completed you will still owe non-dischargeable debts. Examples include:

  • Debts not listed in the schedule of creditors. Thus, it is extremely important to list all debts, even if disputed.
  • Some taxes. The following taxes are NOT dischargeable:
  • Recent Property Taxes (incurred before filing)
  • Tax liens
  • Income taxes UNLESS the following conditions are met. If all of the following apply, the income tax IS dischargeable:
  • Return was due at least 3 years before filing bankruptcy
  • Tax return was actually filed at least 2 years before filing bankruptcy
  • Taxing authority assessed the tax at least 240 days before bankruptcy filing
  • No willful evasion or tax fraud
  • Claim based on fraud or false pretenses
  • Consumer debt for more than $675 for luxury goods or services incurred within 90 days of filing
  • Cash advances of more than $950 made within 60 days of filing
  • Alimony, child support, marital debts arising out of a separation agreement or court order
  • Student loans
  • Loans from retirement accounts
  • Damages for willful and malicious injury
  • Debt for death or personal injury caused by unlawful operation of a vehicle while intoxicated
  • Debts for fraud or incurred through embezzlement or larceny

Process

Most Chapter 7 cases can be completed in 4 to 6 months when working with The Law Office of Kelli Y. Allen. The following is a general overview of the process after employing the services of KYA Law:

  • Client submits all required documentation and information to KYA Law
  • Client completes required credit counseling & provides certificate of completion to KYA Law
  • KYA Law completes bankruptcy petition and schedules
  • Client signs documents
  • KYA Law files petition electronically with court
  • Automatic stay is in place immediately upon receipt by the court
  • Clerk of Court notifies all creditors of pending action
  • Within a few days, Clerk of Court schedules the 341 meeting with the bankruptcy administrator (will usually be scheduled for about a month later)
  • Attorney and client attend 341 meeting (creditors may also attend but rarely choose to do so)
  • Client completes financial management class (must be completed before discharge)
  • If no creditor objects within 60 days of 341 meeting, administrator begins the discharge process (usually takes about a week)
  • Final Discharge

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Law Office of Kelli Y. Allen, PLLC

10150 Mallard Creek Rd, Suite 105
Charlotte, NC 28262

Phone: (704) 870-0340

Regular Hours
  • Monday - Friday 9:00 Am - 5:00 PM
  • Saturday & Sunday Closed

Also available by Text (704) 727-4310 or Live Chat

Service Area:

Charlotte and surrounding areas.