Should You File Chapter 7 or Chapter 13 Bankruptcy in North Carolina?
When financial burdens become too overwhelming, filing for bankruptcy can offer a fresh start. However, the choice between Chapter 7 and Chapter 13 can be complex. Each type of bankruptcy presents unique benefits, eligibility criteria, and lasting effects.
If you’re thinking about bankruptcy in North Carolina, knowing the essential differences between Chapter 7 and Chapter 13 can help you in making a well-informed decision.
Chapter 7 Bankruptcy
Chapter 7 is commonly known as “liquidation” bankruptcy. This type of bankruptcy aims to discharge most unsecured debts, which include credit card debt, personal loans, and medical expenses. In a Chapter 7 proceeding, a trustee appointed by the court might liquidate some non-exempt assets to reimburse creditors. However, many people who file Chapter 7 bankruptcy don’t lose any property because North Carolina’s exemption laws protect essentials, such as your home, car, household goods, and retirement accounts.
To qualify for Chapter 7 in North Carolina, you need to pass the means test, which evaluates your income against the state’s median for your household size. If your income is below the median, you likely will qualify. If it’s above, you may still be eligible based on your expenses, but the court could recommend Chapter 13 instead.
Chapter 13 Bankruptcy
Chapter 13 is commonly known as “reorganization” bankruptcy. Instead of eliminating debt right away, Chapter 13 allows you to establish a repayment plan lasting three to five years based on your income and assets. This is ideal for individuals with steady income who want to catch up on mortgage payments, car loans, or other secured debts while protecting their property from foreclosure or repossession.
Chapter 13 does not necessitate selling your assets. Instead, you pay a trustee monthly, who allocates the funds to your creditors based on your approved plan. At the end of the repayment term, any remaining eligible unsecured debt is typically discharged.
Key Differences Between Chapter 7 and Chapter 13
There are several important distinctions between these two types of bankruptcy in North Carolina:
- Debt elimination vs. repayment: Chapter 7 wipes out qualifying debts quickly, while Chapter 13 involves repaying all or part of your debts over time.
- Eligibility: Chapter 7 requires you to meet income limits, while Chapter 13 requires you to have a regular income and stay under specific debt limits.
- Asset protection: Chapter 13 may be a better option for individuals with significant assets they wish to retain, which would not be protected under Chapter 7.
- Foreclosure protection: Chapter 13 can help you keep your home if you’re behind on mortgage payments by giving you time to catch up.
- Credit impact: Both types of bankruptcy affect your credit, but Chapter 13 stays on your credit report for 7 years from the filing date, while Chapter 7 remains for 10 years.
Chapter 7 vs. Chapter 13 at a Glance
| Feature | Chapter 7 | Chapter 13 |
| Type | Liquidation | Reorganization |
| Time Frame | 4–6 months | 3–5 years |
| Asset Loss | Possible (if not exempt) | Rare—assets are usually protected |
| Income Requirement | Must pass means test | Steady income required |
| Stops Foreclosure? | Temporarily | Yes, through repayment plan |
| Payment Plan Required? | No | Yes |
| Credit Report Impact | Stays on report for 10 years | Stays on report for 7 years |
Which One Is Right for You?
Choosing between Chapter 7 and Chapter 13 depends on several personal and financial factors:
- Are you facing foreclosure or repossession?
- Do you have assets you want to protect?
- Is your income too high to qualify for Chapter 7?
- Do you need more time to catch up on missed payments?
If your goal is to discharge debt quickly and you don’t have many assets, Chapter 7 may be a good fit. If you’re trying to save your home, car, or catch up on child support or taxes, Chapter 13 may provide the structured plan you need.
Speak With a North Carolina Bankruptcy Attorney About Your Options
Bankruptcy laws are complex, and the right choice often depends on the specific details of your financial situation. That’s why it’s important to speak with a knowledgeable bankruptcy attorney who understands North Carolina’s exemptions, procedures, and court expectations.
At the Law Office of Stephen E. Robertson, we assist individuals and families in Greensboro and throughout North Carolina in finding the best path forward. Whether Chapter 7 or Chapter 13 is right for you, we’ll guide you every step of the way with experience and compassion.
Contact us today to schedule a consultation and take the first step toward a brighter financial future.