Inner Banks Legal Services helps people file for bankruptcy. Bankruptcy is a federal process and the bankruptcy court is part of the federal court system. The information found on this page is not intended to be legal advice, and should not be taken as legal advice. This information offers brief and general information on the bankruptcy process.
If you are considering filing for bankruptcy protection, we recommend you consult with a bankruptcy attorney to discuss how a bankruptcy would affect you personally.
Common Bankruptcy Terms
Automatic Stay: The most important aspect of bankruptcy is the "automatic stay." When a bankruptcy case is filed, all pre-filing creditors are automatically "stayed." This means that the creditors must stop all collection phone calls, emails, texts, letters and court actions; as well as cease any recovery of collateral upon notice of the bankruptcy filing, and may not proceed without first obtaining approval from the bankruptcy court.
Bankruptcy Administrator: The Bankruptcy Administrator is a government employee. One of the roles of the Bankruptcy Administrator is to monitor cases for bankruptcy abuse and fraudulent activity by creditors and debtors. The Bankruptcy Administrator for the Eastern District of North Carolina is Marjorie K. Lynch. For further information about our Bankruptcy Administrator and her role in the bankruptcy process, click here.
Bankruptcy Trustee: A Bankruptcy Trustee is an attorney who is appointed or selected to oversee particular bankruptcy cases. A Bankruptcy Trustee's duties vary depending on the type of case, the creditors involved, and the circumstances of the debtor. In general, the Trustee reviews the case for non-exempt property, manages or sells the non-exempt property, and distributes the proceeds of non-exempt property to the creditors. A list of the Bankruptcy Trustees for the Eastern District of North Carolina can be found here.
Creditor: A creditor is anyone to whom the debtor owes money. There are two types of creditors, secured and unsecured.
- Secured creditors are those that have a lien on your property such as those secured by your home, vehicle, furniture, tools, etc.
- Unsecured creditors are those that do not have a lien on your property. Examples of unsecured creditors include credit cards, cash advances, medical bills, personal line of credit, family members, friends, past due utility bills, etc.
Debtor: A debtor is a person who owes money to another. In the bankruptcy process, the court will refer to the person filing for bankruptcy as the "debtor."
Discharge Order: A discharge order is the order that releases the debtor from personal liability for certain specified debts. This order informs the creditors that the debtor is no longer legally required to pay any of the debts that are discharged.
Exemptions: An exemption helps determine what property the debtor can keep. If the debtor's property (such as a home, car, personal belongings, cash, pension, etc.) are fully exempt, the debtor may keep the property during and after bankruptcy. If the property is non-exempt, the Bankruptcy Trustee may be entitled to sell the property to pay the debtor's unsecured creditors. The North Carolina bankruptcy exemptions can be found here.
Petition: A petition is the document filed with the court requesting the beginning of the bankruptcy process. The petition includes a disclosure of all of the debtor's assets, liabilities, income, and expenses. The petition consists of court-authorized forms which must be completed and signed under penalty of perjury. A debtor must list all property owned (no matter where located), as well as all debts owed.
341 Meeting of Creditors: The 341 Meeting of Creditors is the meeting in which the debtor will meet the Bankruptcy Trustee assigned to his or her case. The 341 Meeting date will be set about Thirty (30) days from the date of the filing of the petition. Some creditors may attend the hearing to ask the debtor specific questions about the filing. However, very few creditors actually attend the 341 Meeting, preferring to find the answers to all or most of their questions by reviewing the petition online. At the 341 Meeting, the Bankruptcy Trustee will ask the debtor a series of common questions to determine the truthfulness of the debtor. The Trustee may also ask the debtor specific questions based on the debtor's petition and individual circumstances.
Chapter 7 v. Chapter 13
Chapter 7 bankruptcy is designed to zero out the amount due to your unsecured creditors. To qualify for Chapter 7 bankruptcy, you must have little or no disposable income. To determine if you have disposable income, you must first determine your median income and then subtract your applicable deductions. The median income for your household size can be found here. The applicable deductions from your median income can be found here. If you have disposable income after calculation of your median income and subtracting the applicable deductions, you may be required to file a Chapter 13 bankruptcy. As a result, Chapter 7 bankruptcy is typically for low-income debtors.
When you file for Chapter 7 bankruptcy, a trustee is appointed to administer your case. In addition to reviewing your bankruptcy papers and supporting documents, the Chapter 7 trustee's job is to sell your non-exempt property to pay back your unsecured creditors. If all of your property is exempt, your unsecured creditors receive nothing. If you are past-due to your secured creditors, and you wish to bring your payments current on your house, car, or other secured property in order to keep it, you will need to file a Chapter 13 bankruptcy.
In general, the Chapter 7 bankruptcy process begins and ends in roughly 90 days. A Chapter 7 bankruptcy will remain on your credit report for 10 years. However, shortly after filing you can anticipate your credit score increasing. Neither employers nor landlords may discriminate against you solely based on your bankruptcy filing.
Chapter 13 bankruptcy is designed for debtors with a regular source of income who can pay back all or a portion of their unsecured creditors through a monthly repayment plan. The amount a debtor must pay back is based on the debtor's income, expenses, types of debt, non-exempt property, and past due amount owing to secured creditors. Some benefits of filing a Chapter 13 bankruptcy include the following:
- Chapter 13 bankruptcy can stop a foreclosure or repossession, and allows a debtor to slowly bring the missed payments current over a period of time;
- Chapter 13 bankruptcy can aid the debtor in paying alimony or child support arrears;
- The ability to "cram-down" certain vehicle loans. Meaning you will only pay your secured creditor the market value of the vehicle at the Till rate (the Wall Street Journal Prime Rate plus 2%);
- The ability in some circumstances to remove junior liens and judgments from your real property; and
- In some circumstances the ability to remove penalties and charges from past due taxes, or to zero out portions of past due taxes.
When you file for Chapter 13 bankruptcy, a trustee is appointed to administer your case. In addition to reviewing your bankruptcy papers and supporting documents, the Chapter 13 trustee's job is to collect your monthly plan payment and distribute the payments to your secured creditors, and proportionally to your unsecured creditors. The plan generally lasts between 36 and 60 months (3 to 5 years). To qualify for a Chapter 13 bankruptcy, the debtor must not have secured debts totaling more than $1,184,200.00, or unsecured debts totaling more than $394,725.00.
A Chapter 13 bankruptcy will remain on your credit report for 7 years. However, shortly after filing you can anticipate your credit score increasing. Neither employers nor landlords may discriminate against you solely based on your bankruptcy filing.
Debt Settlement, Debt Consolidation, or Bankruptcy
Debt Settlement is a process in which you hire a third party company to negotiate with your creditors to settle your unsecured debts for less than what is owed. Secured debts cannot be reduced through debt settlement. While some debt settlement companies can get your unsecured debts reduced to a fraction of what you owe, it will cost more than filing a bankruptcy. Your unsecured creditors do not have an obligation to work with the debt settlement company or agree to the settlement proposed by the debt settlement company; as such there is a chance that the debt settlement company will not be able to obtain a settlement for some of your unsecured debts. Debt settlement companies generally try to negotiate your smaller debts first, leaving interest and fees on your larger debts to grow.
The debt settlement company will take a portion of your monthly debt settlement payments as a fee for the service. Most debt settlement companies will charge upfront fees in addition to the monthly service fee, and many will not pay your unsecured creditors until there is enough money in your account to settle the full debt settlement for each individual creditor in one lump sum amount. During the time in which the debt settlement company is holding your monthly payments and accruing the full settlement amount, your credit will take a hit due to your creditors not receiving payments on the debt. For these reasons, debt settlement is rarely successful.
Debt Consolidation is a process in which several of your loans are consolidated, or lumped together, to pay one single loan payment with a single interest rate. Generally, a bank will require this consolidated loan be secured by your home or other personal property (such as your car). This is a good option if you have the income available to make the consolidated loan payment, as it will allow you the ability to pay down your debt. However, if your credit is already in bad shape and you have a low credit score, or no available equity in your home or car to secure the consolidation loan, it is unlikely that you will be able to obtain such a loan.
Bankruptcy is a personal decision that should be made after consulting with a bankruptcy attorney, but there are some advantages that exist when compared to debt settlement or debt consolidation:
- Filing for bankruptcy can stop debt collection activities such harassing phone calls, wage garnishments, repossessions, and foreclosures. While debt consolidation may be able to stop some of these activities, debt settlement cannot.
- Debt settlement may subject you to taxes for the forgiven debts; bankruptcy has no such tax implications.
- Bankruptcy offers a fresh start in order for you to move forward debt free, with the ability to begin the rebuilding of your credit report immediately. Debt settlement and debt consolidation will not offer the ability to rebuild your credit report until your debts are paid.
Due to these advantages, we often see bankruptcy debtors rebuild their credit report faster after filing a bankruptcy than they could have done so through settlement or consolidation.