If you own a home in North Carolina it’s likely this is one of your most valuable investments. Recently on our bankruptcy forum a couple asked, “We are in dire financial straits and have debts that we will never be able to repay. We have considered filing Chapter 7 bankruptcy but we are concerned we might lose our home. Can you explain how we can save our house by filing a North Carolina bankruptcy?”
Filing a North Carolina bankruptcy and keeping your home
The good news is bankruptcy laws allow debtors to protect certain assets, with the expectation that some assets will be needed after the bankruptcy to ensure a fresh financial start. Whether or not a family can keep their home, however, depends on several factors: the value of their home, the amount of equity they have in their home, their state bankruptcy exemption laws, and the type of bankruptcy they file.
You mentioned you were considering a North Carolina Chapter 7 bankruptcy. If you do decide to file Chapter 7 bankruptcy this will allow the court-appointed trustee to take your nonexempt assets, liquidate them, and use the proceeds from the sale to repay your creditors.
State homestead exemption laws, however, will often protect a home and will not allow the trustee to liquidate it. It’s important to note, however, that state homestead exemption laws can vary.
For example, Florida has traditionally offered unlimited homestead protection, while Kentucky bankruptcy laws only allow for a $5,000 homestead exemption. Based on these state exemption laws it is much easier for homeowners to keep their homes in Florida than it is in Kentucky.
So what about North Carolina? Currently, North Carolina debtors can exempt $35,000 of equity in their home. If you have a home which is “under water” the trustee will have no interest in selling the property because they cannot generate any income. If, however, you have paid off your house and you have more than $35,000 of equity, assuming you file a North Carolina Chapter 7 bankruptcy, the trustee could decide to sell your house.
Another option to discuss with your bankruptcy attorney is whether or not you could “buy out” the non-exempt value in your house by paying the bankruptcy trustee cash equal to your non-exempt home equity.
Filing Chapter 13 in North Carolina and keeping your home
Rather than filing a North Carolina Chapter 7 bankruptcy you may also be able to file Chapter 13 bankruptcy. Although this will not immediately discharge your qualifying unsecured debts, it may allow you to pay your mortgage arrearages over a 3 or 5 year repayment period, allow you to stop foreclosure, and allow you to keep your home.
Regardless of whether or not you decide to file a North Carolina Chapter 7 bankruptcy or you decide to file Chapter 13 bankruptcy, you will need to discuss your options with a bankruptcy lawyer, and you must keep current on your monthly mortgage payments. Failure to make all required, on-going mortgage payments will allow your mortgage lender to resume foreclosure proceedings.
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