According to the 2005 Bankruptcy Act, all state courts must adhere to federal guidelines for bankruptcy. There are three districts in North Carolina with courts in thirteen cities. The most commonly filed bankruptcies are Chapter 7, Chapter 11, Chapter 12 and Chapter 13.
Chapter 7 is a straightforward debt elimination type of bankruptcy. The debtor filing typically has a high debt to low income ratio and wishes to wipe his or her financial slate clean of unsecured debts such as credit card bills or hospital invoices. Non-dischargeable debt like student loans, child support and back taxes remain the responsibility of the petitioner even after their bankruptcy is complete. Often the petitioner will have to liquidate many of their assets to cover outstanding debts.
On the other hand, Chapter 13 allows a repayment period of typically 3 to 5 years. The debt is minimized, negotiated, and restructured to be paid off completely by the debtor in this timeframe. As long as the petitioner continues to make payments as agreed upon in court, he or she will be able to keep non-exempt assets such as their home or car. Chapter 13 is a good option for individuals seeking debt relief who have a steady stream of income.
Chapter 11 bankruptcy caters to businesses and works similarly to Chapter 13. The business is able to stay in operation while repaying debt over an agreed upon time period, generally 3 to 5 years, and the assets of the business are protected. Family businesses like farming and fishing have a code written specifically for them, Chapter 12 bankruptcy.
All petitioners of bankruptcy are required to undergo credit counseling up to six months before filing. After counseling, some individuals find a way to pay off their debt without seeking bankruptcy, others decide to file. These are the steps required.
First, a petitioner must determine for which type of bankruptcy he or she is eligible. A Means Test does this by comparing the petitioner's income over the last 6 months with the income of other wage earners in North Carolina. If the income is over the median, the petitioner is eligible for Chapter 13 only. Those with a lower income may file for Chapter 7 or Chapter 13.
Gathering paperwork is the next part of the process. Many documents are needed to prove to the court a petitioner is a good candidate for bankruptcy. These may include, but are not limited to: tax returns from the last 2 years, records from any recent major financial transactions, property deeds, vehicle titles, a list of all debts, loan information, an inventory of all assets, and monthly expenses. Chapter 13 petitioners are also required to complete a detailed repayment summary explaining how their debts can be paid off in 3 to 5 years.
This paperwork, the debt repayment summary, and all necessary forms are combined and submitted to the court. Some petitioners find it helpful to hire legal counsel to file for bankruptcy, while others choose to file on their own. The fee for Chapter 7 is $306 but may be waived in some cases. Chapter 13's fee is $281 and cannot be waived. Of course, all attorney fees are the responsibility of the petitioner.
Once the documents are received, the court issues what they call an "automatic stay." This order prevents creditors from contacting the debtor directly and stops any foreclosure proceedings. A court appointed trustee then reviews the case and determines which assets can be used to repay debt for the petitioner. The trustee also arranges a 341 meeting for creditors and the debtor to negotiate terms for repayment, if no agreement can be made a judge will intervene.
Lastly, the debtor is required to complete a financial management course to finalize their bankruptcy. Chapter 13 individuals must continue making payments as agreed upon in the debt repayment summary to avoid a trip back to court.
North Carolina's court system is divided into three districts: the Eastern District, Middle District, and Western District. These courts have locations in cities throughout North Carolina and are assigned jurisdiction over those cities and surrounding counties. The Eastern District has locations in Elizabeth City, Fayetteville, New Bern, Raleigh, Wilmington, and Wilson. The cities of Durham, Greensboro, and Winston-Salem comprise the Middle District Court. Lastly, the Western District Courts are situated in Ashville, Charlotte, Shelby, and Statesville.