Consumer: What is Bankruptcy?

Bankruptcy is a legal proceeding in which a person who cannot pay his/her bills can stop all CREDITORS from collecting debts from you, at least, until the court sorts the debts accordingly by law.

By filing bankruptcy, you may:

• Eliminate the legal obligation to pay your debts. This is called “discharge.”

• Stop foreclosure on your house or mobile home and allow you time to catch up on missed payments.

• Prevent repossession of property such as a car. 

• Stop action by creditor to collect a debt.

• Restore or prevent termination of utility services.

In bankruptcy it is usually not possible to

• Eliminate the rights of creditors who are secured. (Creditors who have a lien on property as collateral for a loan).

• Discharge or eliminate certain debts, such as, child support, alimony, most student loans, court restitution orders, criminal fines, taxes.

• Protect cosigners on your debts. If you discharge a loan in bankruptcy the cosigner may still have to pay.

There are several types of bankruptcies. Most people filing bankruptcy want to file under Chapter 7 or Chapter 13. Either bankruptcy may be filed individually, or jointly by a married couple.
 

Chapter 7:

In this type of bankruptcy, the person who files bankruptcy (the debtor) asks the court to wipe out his debts. The debtor will get his debts discharged, but must give up his property except for property that the law allows for the debtor to keep (exempt property). In most cases all of the debtor’s property is exempt.
This type of bankruptcy is not helpful when the creditor is a secured creditor (has a lien or collateral on your property).
 

Chapter 13:

The debtor in this proceeding pays his debts using a plan of payments. You should consider filing a Chapter 13 bankruptcy if:

• You own your home and have not been able to make payments.

• Are behind on debt payments, but need time to catch up.

• Have valuable property which is not exempt.

• You can afford to pay creditors and enter a payment plan.
   

What does it cost to file bankruptcy?

As of December 1, 2020 the filing fee for bankruptcy is $338 for a Chapter 7 bankruptcy and $313 for a Chapter 13.

Can you own anything after bankruptcy?
Yes, you can keep all property that is exempt and anything you obtain after bankruptcy. If you receive an inheritance, a property settlement or life insurance within 180 days of filing bankruptcy, you may have to pay to your creditors that money.

Will bankruptcy prevent you from ever getting credit?
The decision as to whether not to extend credit is up to each individual creditor, and depends on a variety of factors, such as income, collateral, etc. The fact that you have filed bankruptcy will appear on your credit report for 10 years.

To find other Legal Aid of North Carolina materials, including any materials mentioned in this document, go to lawhelpNC.org. If you need legal help please go to legalaidnc.org/.