We know that almost everyone hates the idea of not paying their debts, but circumstances beyond your control may put you in an impossible financial position. You have a right to know your options and you have a right to know how you can legally manage your debts. If you have accumulated more debt than you will be able to realistically pay, you should explore how you can manage that debt – whether it be through bankruptcy or another means. 

No. We only advise filing a regular bankruptcy (Chapter 7) if the value of your house is such that it would be protected.  If it appears that you have too much equity to protect your house in a regular (Chapter 7) bankruptcy filing, we will advise filing an alternative proceeding, commonly referred to as a “Chapter 13.” In Chapter 13 proceedings, you have the option of keeping all of your property.  

In a normal bankruptcy proceeding, North Carolina allows each individual to protect up to $35,000 of equity in your residence. That means that a married couple can protect up to $70,000 of equity in their house. If you are a widower over 65, the individual protection is increased to $60,000.

Additionally, there is a special type of protection for real property (land, house, etc.) owned by a husband and wife in North Carolina. If you and your spouse own a house, your equity in that house may be protected even if it is above the normal $70,000 limit. Determining whether this protection is available requires a careful and thorough review of all of your debts.

Most of our clients keep their cars through their bankruptcy. North Carolina allows you to protect $3,500-$8,500 equity in a vehicle. If you owe money on your vehicle and you would like to keep it and continue making your payments, there is an option to “reaffirm” this debt. Reaffirming a debt means that it passes through bankruptcy, you keep the vehicle and you keep making your payments.

The court filing fee for a regular bankruptcy (Chapter 7) is currently $335. The filing fee for a Chapter 13 proceeding is $310. You must also pay for credit counseling, which typically costs about $40-$50. The attorney fee depends on the complexity of the case and will be discussed in your initial consultation.  All initial consultations for individuals are free.

Yes, there are four types of proceedings available to individuals under the bankruptcy code. When you think of bankruptcy, you are probably thinking of the most common proceeding. This is referred to as Chapter 7 or just “bankruptcy.” The second most common proceeding is referred to as a “Chapter 13.” A Chapter 13 proceeding involves a 36-60 month payment plan. In a Chapter 13, you make monthly payments to a third party, and those funds are delivered to your creditors.

There is also a reorganization proceeding known as a “Chapter 11.” This is used by businesses and individuals with significant assets to reorganize their businesses and change the way their debts are paid.

There is also a special proceeding only available to family farmers and family fisherman. This is commonly called a “Chapter 12.”

This is the most common type of bankruptcy filing. In this proceeding, you are able to eliminate your liability for most unsecured debts while keeping all of your protected property (also known as “exempt property”).  In most Chapter 7 filings, clients keep their houses, their cars, their household goods, any retirement savings, and some other protected property.

In a Chapter 13 proceeding, you and your attorney work together to create a plan to repay part or all of your debts over 3 to 5 years. You make monthly payments to a trustee and the trustee distributes the money to your creditors.

A Chapter 11 is a complex reorganization proceeding available to individuals with significant assets and debts and also to businesses. Chapter 11 proceedings reorganize an individual’s or a company’s debt structure to make it feasible to continue operating.

Yes, filing for bankruptcy stops almost all other collection actions. You can file for bankruptcy before a lawsuit is filed against you, while the lawsuit is pending, or after it has been resolved. It should be noted that filing for bankruptcy before a collection action has been finalized (meaning a judgment has been entered) is different than filing before that judgment has been entered, so it is important to discuss what impact a judgment may have on you with an attorney.

Bankruptcy proceedings are listed on your credit reports and so they will have some impact on your credit score.

A bankruptcy filing under Chapter 7 typically remains your credit report for 10 years. Chapter 13 bankruptcy proceedings remain on your credit report for 7 years.

Regular bankruptcies (Chapter 7s) typically last about 4-6 months. Most of this is “notice” time – which is regular living time for you.  Chapter 13 proceedings last between 3-5 years.

Bankruptcy does “discharge” (erase) most debts. This includes credit card debts, medical bills, utility bills, deficiency claims, personal loans, etc. There are certain types of debts that are given special treatment in bankruptcy and are not erased. Student loans, certain taxes, child support, and alimony debts are not affected by bankruptcy and you would owe them even after filing a bankruptcy proceeding.

We highly recommend having a meeting with a bankruptcy attorney even if you do not plan on filing. Bankruptcy attorneys have experience not only with bankruptcy proceedings but with debt collection in general. It is well worth the time it takes to learn about how the debt collection process works, what you can expect from creditors, and what your rights are when dealing with creditors and debt collectors.

A lawyer will ask for background about your financial situation. To give you appropriate advice, we need to know about your debt and your assets, so we ask about how much debt you have, what type of debt it is (credit card, student loan, car loan, etc.), and what type of property you own. Once we have some background, we can provide an overview of options available to you, which may or may not include bankruptcy.

Normally, no. Most bankruptcy proceedings require one appearance at a meeting with someone called a “bankruptcy trustee.” In the Western District of North Carolina, the bankruptcy trustees are all attorneys appointed by the court to supervise certain cases. For most people who file for bankruptcy, the one meeting with the trustee is the only “public appearance” required.

People typically choose to file a Chapter 7 proceeding if the following are all true:

  • You pass the “income test” (also known as the means test).
  • You are able to protect your property under the exemption protections provided.
  • You are current on house payments (or you do not own a house).
  • People typically choose to file a Chapter 13 proceeding instead of a Chapter 7 if any of the following are true:

  • They have too much income and therefore do not qualify to file a Chapter 7.
  • They have more assets than they can protect in a Chapter 7 proceeding.
  • They are behind on house payments and they are trying to stop a foreclosure sale.

To file a Chapter 7 bankruptcy proceeding you have to meet certain income requirements. The Census Bureau periodically reports the median income for each state (https://www.justice.gov/ust/means-testing). If you are below the median income for your family size in North Carolina, you automatically qualify for bankruptcy. If you are above the median income, then you must fill out an additional form – which is essentially a monthly budget to determine if you qualify.

Before you file for bankruptcy, you are typically required to do two things. You must fill out the required paperwork truthfully and accurately with your attorney. You are also required to take a credit counseling session with an approved counseling provider. The credit counseling session can be done online, over the phone, or in person.

Yes. A bankruptcy filing is not a barrier to all future credit. There are different timelines for different types of future credit. Some credit card companies and car dealerships will make offers of credit almost immediately following a bankruptcy. An offer of credit does not necessarily mean that it is a “good deal.” Many companies offer credit at high-interest rates immediately following a bankruptcy until you have time to rebuild your credit.

Mortgage companies have different rules of when to start making mortgage loans after a bankruptcy. Private lenders have their own rules. Typically, Fannie Mae and the Federal Housing Administration require waiting periods of two to four years. Under some circumstances, the FHA waiting period can be as short as one year.

Yes, but there are certain waiting periods between bankruptcy filings. If you file a “regular” Chapter 7 bankruptcy, you cannot file again for 8 years. The time periods differ if you file a Chapter 13 proceeding.

Absolutely. Bankruptcy has a powerful protection called the “automatic stay” that stops debt collection proceedings. This includes stopping calls from creditors.

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