What Are the North Carolina Bankruptcy Exemptions?

What are the North Carolina bankruptcy exemptions and why are they important in a Chapter 7 bankruptcy? 

In a Chapter 7 bankruptcy, you have the opportunity to walk away from some, or all, of your unsecured debts and get a fresh start financially. If this is something you’re considering, it's important to make certain that you understand exemptions. Exemptions are the laws that help you to protect your real and personal property. This matters because the basic idea behind bankruptcy is that you turn over your property to the bankruptcy estate, where your bankruptcy trustee can sell certain types of property to pay your unsecured creditors fairly. If your bankruptcy trustee could sell all of your property, however, it’d be pretty hard to start over. Since the purpose of bankruptcy is to allow for that fresh start, exemptions exist to help filers protect what they need to maintain a basic standard of living. 

Exemptions will protect different types of property up to varying dollar amounts. This is meant to help keep things as fair as possible between the debtor (or filer) and their creditors. It’s fair and reasonable to keep property and possessions you need to survive, but it would not be fair to your creditors if you kept luxury or expensive items for yourself rather than pay any money on your debts. This is where a bankruptcy court may need to step in to decide whether the exemptions listed in your filing are properly applied. 

Does North Carolina allow the use of federal bankruptcy exemptions?

Every state has its own set of bankruptcy exemptions. There’s also a set of federal exemptions contained in the United States Bankruptcy Code. Several states allow filers to choose whether to use state exemptions or federal bankruptcy exemptions, however, North Carolina doesn’t allow for the choice. If you’re a North Carolina resident filing bankruptcy, your only option is to use the North Carolina state bankruptcy exemptions. You can, however, use the federal nonbankruptcy exemptions in addition to the North Carolina state exemptions for any other federal protections available, either within a bankruptcy or not, beyond the state exemptions.

There is, however, a set of circumstances where you may not be able to use the North Carolina state exemptions. If you do not meet the residency requirement, meaning you have lived in North Carolina for less than two years at the time of filing (referred to as the 730-day rule), then you will need to use different exemptions. This gets a little complicated but when you don’t meet a residency requirement for your current state you’ll need to look back to the six months before two years ago to determine which exemption laws apply. The 180-day rule essentially requires you to use the exemption laws used by the state where you lived for the majority of 180 days, starting two and a half years ago. So that would result in you using the state exemptions from that state, or possibly choosing the federal exemptions if your previous state allowed for the choice.

North Carolina Bankruptcy Exemptions

The North Carolina bankruptcy exemptions can be found in the North Carolina General Statute, Chapter 1. Married persons filing for bankruptcy in North Carolina can each claim their full exemption, which allows for doubling exemptions when they are filing jointly. Doubling, however, does not allow one spouse to exemption property that is deeded or titled solely in the other’s name. 

Real Property - the North Carolina Homestead Exemption

The North Carolina homestead exemption can apply to the equity in any real or personal property used as a residence. The inclusion of both real and personal property means that it applies to land (real estate) as well as mobile homes. The amount of equity that a single filer can protect with the homestead exemption is up to $35,000. Married couples filing jointly can increase that amount to up to $70,000. N.C. Gen. Stat. § 1C-1601(a)(1)

The exemption also rises to $60,000 for a filer aged 65 or older when the property is held as tenants by the entirety or joint tenants with right to survivorship, and the filer’s spouse has died. The specific ways to title property mentioned above allow for the property to pass from both spouses equally to only one when the other spouse dies. This provision essentially allows a filer the full protection they would be able to take if their spouse were still alive.

Finally, the North Carolina homestead exemption can also apply beyond a traditional homestead. If you are not otherwise using the homestead exemption you can exempt up to $35,000 of equity in a burial plot. (N.C. Gen. Stat. § 1C-1601(a)(1)).

Personal Property Exemptions

North Carolina state exemptions include the following items of personal property up to the amount as listed. Married couples filing jointly can double the exemption amounts.

Motor vehicle: You can exempt up to $3,500 of equity in one motor vehicle. (N.C. Gen. Stat. § 1C-1601(a)(3)). This exemption, however, does not apply if you purchased the car within 90 days of filing bankruptcy. (N.C. Gen. Stat. § 1C-1601(d)). 

Clothing, household goods, furnishings, appliances, books and the like are protected up to a total of $5,000 value. You can also protect an additional $1,000 per dependent, up to $4,000 total beyond the original $5,000. (N.C. Gen. Stat. § 1C-1601(a)(4)). Similar to the motor vehicle exemption above, the exemption doesn’t apply to property purchases within 90 days of filing bankruptcy. 

Health aids, if prescribed, are protected in full. (N.C. Gen. Stat. § 1C-1601(a)(7)).

Wildcard: North Carolina also allows for a wildcard exemption that can be applied to any property. If you didn’t max out your homestead or burial exemption, you can use up to $5,000 of it to protect any other property. Again, however, this specifically excludes any property purchased by the filer within 90 days of filing bankruptcy. North Carolina also allows for an additional wildcard exemption of $500, pursuant to Article X of the the North Carolina state constitution. 

Miscellaneous Other Personal Property

Tools of the trade - North Carolina filers can protect up to $2,000 in tools, professional books, and implements involved in a trade. (N.C. Gen. Stat. §1C-1601(a)(5)). Just as with the personal property exemptions above, this exemption does not apply if you purchased this property within 90 days of filing bankruptcy. (N.C. Gen. Stat. § 1C-1601(d)).

Money Benefits

Beyond property exemptions, North Carolina also offers exemptions for money and other benefits that you are entitled to protect, many of which in full. The exemptions with no limit apply to the following items:

Wages that have been earned, but are unpaid, for work done 60 days before the filing date are protected in full. (N.C. Gen. Stat. § 1-362)).

Alimony, child support, and separate maintenance are protected in full if the filer can show the payments are necessary for support. (N.C. Gen. Stat. § 1C-1601(a)(12)).

Personal injury and wrongful death compensation in full, but you should note that certain claims connected to the accident are not exempt. (N.C. Gen. Stat. § 1C-1601(a)(8)).

Insurance is fully exempt if it is

• Life insurance for the benefit of the filer's children or spouse (N.C. Gen. Stat. § 1C-1601(a)(6)), or

• An employee group life insurance policy or proceeds. (N.C. Gen. Stat. § 58-58-165).

The following money benefits are protected up to the amounts stated by North Carolina exemptions:

• Qualified college savings accounts up to $25,000, although there is an exception for some amounts contributed within the last 12 months. (N.C. Gen. Stat. § 1C-1601(a)(10)).

Other North Carolina Exemptions

North Carolina law protects certain benefits and accounts from creditors, regardless of whether you are in a bankruptcy. The following public benefits are protected in full in either scenario:

Public Benefits

• Unemployment compensation. (N.C. Gen. Stat. § 96-17).

• Workers' compensation benefits. (N.C. Gen. Stat. § 97-21).

• Crime victims' compensation. (N.C. Gen. Stat. § 15B-17).

• Aid to the blind and families with dependent children. (N.C. Gen. Stat. § 108A-36).

• Future Social Security benefits. (42 U.S.C. § 407 (a)).

• Veterans benefits. (38 U.S.C. § 5301).

Pensions

Pensions and retirement plans, for the most part, are protected in full in North Carolina under federal or state laws. This includes the following:

• All tax-exempt retirement accounts including 401(k)s, 403(b)s, profit-sharing, and money purchase plans, SEP and SIMPLE IRAs, and defined benefit plans. (11 U.S.C. § 522(a)(3)(C)).

• One particular benefit to filers in North Carolina is that while IRAs and Roth IRAs have an unlimited exemption under state law, in North Carolina the protection extends to inherited IRAs, which is not the case in most other states. (N.C. Gen. Stat. § 1C-1601(a)(9)).

• Retirement benefits payable from another state government are exempt if the benefits are exempt in that state. (N.C. Gen. Stat. § 1C-1601(a)(11)).

• North Carolina filers who are firefighters or rescue workers have unlimited protection for pension benefits. (N.C. Gen. Stat. § 58-86-90).

• North Carolina legislators have unlimited protection for pension benefits. (N.C. Gen. Stat. § 120-4-29).

• North Carolina filers who are municipal, city or county employees have unlimited protection for pension benefits. (N.C. Gen. Stat. § 128-31).

• North Carolina filers who are teachers have unlimited protection for pension benefits. (N.C. Gen. Stat. § 135-9).

• State employees in North Carolina have unlimited protection for pension benefits. (N.C. Gen. Stat. § 135-95).

• North Carolina filers who are law enforcement officers have unlimited protection for pension benefits. (N.C. Gen. Stat. § 143-166-30(g)).

Filing Chapter 7 Bankruptcy? 

Checking in with a bankruptcy attorney in North Carolina can help you to make sure that you can use exemptions to exempt property most important to you when filing a bankruptcy case. Most bankruptcy attorneys offer a free consultation so you can get this peace of mind regardless of whether you decide to hire a bankruptcy lawyer to help you file bankruptcy. It can also be helpful to discuss if you are on the right path aiming for Chapter 7 bankruptcy, or whether it makes more sense for you to file a Chapter 13 bankruptcy instead. If you can’t afford to pay attorney fees but still need the debt relief of Chapter 7, you can check out Upsolve’s screening tool to see if you are a good fit for free our free web app to aid in tracking all the details for a successful bankruptcy case.