When financial hardship strikes North Carolina families, the weight of overwhelming debt can feel crushing. Bills pile up, creditors call constantly, and the stress keeps you awake at night. If you’re facing this reality, you’re not alone—thousands of North Carolinians file for bankruptcy protection each year to get the fresh start they deserve.
But here’s what many people don’t realize: not all bankruptcies are the same. The choice between Chapter 7 and Chapter 13 bankruptcy can dramatically impact your financial future, your assets, and how quickly you’ll bounce back. Making the wrong choice could cost you your home, extend your financial recovery by years, or leave you ineligible for the debt relief you desperately need.
The decision isn’t just about wiping out debt—it’s about choosing the path that protects what matters most to you while giving you the best chance at long-term financial stability. Whether you’re a Charlotte teacher struggling with medical bills, a Raleigh small business owner facing foreclosure, or an Asheville family drowning in credit card debt, the right bankruptcy chapter can be the difference between losing everything and keeping your life intact.
What Makes Chapter 7 and Chapter 13 Different?
The fundamental difference between chapter 13 vs chapter 7 bankruptcy comes down to approach: Chapter 7 eliminates most debts quickly through asset liquidation, while Chapter 13 restructures debts into a manageable payment plan over three to five years.
Chapter 7 Liquidation: Often called “straight bankruptcy,” Chapter 7 operates under 11 U.S.C. § 704, where a trustee may sell non-exempt assets to pay creditors before discharging remaining qualifying debts. Most North Carolina filers complete this process in four to six months.
Chapter 13 Reorganization: Governed by 11 U.S.C. § 1322, this process allows debtors to keep their assets while paying creditors through a court-approved repayment plan. The plan typically lasts three to five years, depending on your income level.
The choice affects everything from what you can keep to how long the process takes. Chapter 7 provides faster relief but offers less control over asset retention, while Chapter 13 takes longer but provides more protection for valuable property like homes and vehicles.
Chapter 7 Bankruptcy: The Fresh Start Option
How Chapter 7 Works in North Carolina
Chapter 7 bankruptcy functions like a financial reset button. When you file under 11 U.S.C. § 727, the automatic stay immediately stops creditor harassment, foreclosures, and collection activities. A court-appointed trustee reviews your assets and may sell non-exempt property to pay creditors.
The good news? Most North Carolina filers keep all their property because state and federal exemptions protect essential assets. You can typically keep your primary residence (up to certain equity limits), one vehicle, household furnishings, clothing, and retirement accounts.
North Carolina Bankruptcy Exemptions
North Carolina requires bankruptcy filers to use the state exemption system—you cannot choose the federal bankruptcy exemptions. However, federal nonbankruptcy exemptions, such as protections for Social Security and veterans’ benefits, may still apply.
Key North Carolina state exemptions include:
- Homestead Exemption: Protects up to $35,000 in equity in your primary residence (or $60,000 if you’re age 65+ and the property is jointly owned with a deceased spouse).
- Motor Vehicle Exemption: Protects up to $3,500 in equity in one car.
- Personal Property: Covers up to $5,000 in household goods ($1,000 per item), plus an additional $1,000 for dependents.
- Wildcard Exemption: Offers up to $5,000 of unused homestead exemption to protect other property, such as cash or second vehicles.
- Retirement Accounts: Most tax-qualified retirement accounts are fully protected under federal nonbankruptcy law.
These exemptions help many North Carolina filers keep their home, car, and basic belongings while eliminating or restructuring debt through bankruptcy.
Income Requirements and Means Testing
Not everyone qualifies for Chapter 7. If your current monthly income is less than the median income for a household of your size in North Carolina, you are presumptively eligible for bankruptcy under Chapter 7, though abuse dismissals remain possible.
The means test is based on your average income for the six months preceding your filing date. If your income exceeds North Carolina’s median family income levels, you must complete a detailed means test calculation to determine eligibility.
For cases filed after April 1, 2025, North Carolina median income thresholds help determine Chapter 7 eligibility. The figures change every 6 months or so. If your household size is greater than 9, you would add $9,900 for each additional family member.
The Chapter 7 Timeline
Most Chapter 7 cases in North Carolina follow this timeline:
- Filing (Day 1): Immediate protection begins with the automatic stay
- Meeting of Creditors (30-45 days): Brief meeting with the trustee to review your case
- Asset Investigation (60-90 days): Trustee determines if any assets will be liquidated
- Discharge (90-120 days): Court eliminates qualifying debts permanently
The entire process typically concludes within four to six months, making Chapter 7 the fastest path to debt relief.
Chapter 13 Bankruptcy: The Reorganization Plan
How Chapter 13 Payment Plans Work
Chapter 13 bankruptcy operates under a fundamentally different philosophy. Instead of liquidating assets, you propose a repayment plan under 11 U.S.C. § 1325 that pays creditors over three to five years while keeping your property.
Your plan must pay unsecured creditors at least what they would receive in a Chapter 7 liquidation, but you often pay significantly less than you owe. Priority debts like taxes and domestic support obligations must be paid in full, while secured debts like mortgages can be restructured.
Income and Debt Requirements
Chapter 13 requires regular income to fund your repayment plan. Chapter 13 is available only to an individual with regular income whose total amount of debt is less than $2.75 million, though this figure adjusts periodically.
The debt limits separate into secured and unsecured categories, and your income must be sufficient to make plan payments while covering basic living expenses. Self-employed individuals, commission-based workers, and those with seasonal income can often qualify if they demonstrate consistent earning ability.
Asset Protection Benefits
Chapter 13’s biggest advantage is asset protection. You can keep valuable property that might be lost in Chapter 7, including:
- Homes with significant equity: Chapter 13 allows you to catch up on mortgage payments over time while keeping your home
- Vehicles worth more than exemption limits: You can keep expensive cars by paying their value through your plan
- Investment property: Chapter 13 can protect rental properties and vacation homes
- Business assets: Self-employed debtors can often continue operating while reorganizing debts
Chapter 13 Plan Requirements
Your repayment plan must meet specific criteria under 11 U.S.C. § 1322:
- Plan Length: Plans last three years if your income falls below North Carolina’s median family income, or five years if above median income.
- Payment Amount: You must commit all disposable income to the plan after deducting reasonable living expenses.
- Priority Debt Treatment: Tax debts, child support, and other priority obligations must be paid in full through the plan.
- Secured Debt Handling: You can modify certain secured debts, strip second mortgages on underwater homes, and cure defaults over time.
Which Chapter Fits Your North Carolina Situation?
When Chapter 7 Makes Sense
Chapter 7 works best for North Carolina residents who:
- Have limited assets: If most of your property falls within exemption limits, you’ll keep everything while eliminating debt
- Face primarily unsecured debt: Credit cards, medical bills, and personal loans disappear completely in Chapter 7
- Need immediate relief: The four-month timeline provides faster debt elimination than Chapter 13’s multi-year process
- Have lower incomes: Passing the means test makes Chapter 7 your most efficient option
Consider Sarah, a single mother from Greensboro working part-time while caring for elderly parents. Her income falls below median levels, she owns an older car and rents her home, but $40,000 in medical debt from her father’s cancer treatment crushed her financially. Chapter 7 eliminated her debt in five months while protecting her modest assets and income.
When Chapter 13 Provides Better Protection
Chapter 13 benefits North Carolina residents who:
- Own significant assets: Home equity, valuable vehicles, or business assets that exceed exemption limits
- Face foreclosure: Chapter 13 stops foreclosure and allows you to catch up on mortgage payments over five years
- Have high incomes: If you fail the Chapter 7 means test, Chapter 13 becomes your debt relief option
- Owe priority debts: Tax obligations, student loans, and domestic support can often be managed better through Chapter 13
Take Mike and Jennifer from Charlotte, who owned a home worth $400,000 with a $250,000 mortgage. When Mike’s construction business slowed and they fell behind on payments, foreclosure loomed. Chapter 13 stopped the foreclosure, allowed them to catch up on payments over five years, and reduced their credit card debt by 70%.
The Difference Between Chapter 7 and 13 for Specific Debts
- Credit Card Debt: Both chapters handle unsecured credit card debt effectively, but Chapter 7 eliminates it completely while Chapter 13 often requires partial payment.
- Medical Bills: Chapter 7 wipes out medical debt entirely, while Chapter 13 typically pays medical creditors a small percentage through your plan.
- Tax Debt: Recent tax obligations survive Chapter 7 but can be managed through Chapter 13 payment plans without additional penalties and interest.
- Student Loans: Both chapters rarely discharge student loans, but Chapter 13 can provide temporary payment relief while you complete your plan.
- Mortgage Debt: Chapter 7 offers limited help with mortgages, while Chapter 13 can modify payments, cure defaults, and sometimes eliminate second mortgages.
North Carolina-Specific Considerations
State Exemptions in North Carolina
North Carolina is an opt-out state, which means bankruptcy filers must use North Carolina’s state exemption system. You cannot choose the federal bankruptcy exemptions, although some federal nonbankruptcy exemptions—like Social Security and veterans’ benefits—may still apply.
North Carolina’s state exemptions can protect:
- A portion of home equity through the homestead exemption
- One vehicle (up to a certain value)
- Personal property like household goods, clothing, and work tools
- Retirement accounts qualified under federal tax law
- A wildcard exemption (in some cases) for property not covered elsewhere
The value of what you can keep depends on the type of assets you own and your specific circumstances. While North Carolina’s exemptions may be more limited than the federal system used in other states, many families still retain all essential property when filing for bankruptcy.
Local Court Procedures
North Carolina’s bankruptcy courts in Charlotte, Greensboro, Raleigh, and Wilson each have local rules and procedures that can affect your case timing and requirements. Understanding these nuances helps ensure smooth case progression.
Meeting of Creditors locations vary by district, and some courts offer more flexible scheduling than others. The cost to file bankruptcy in North Carolina is $338 for a Chapter 7 bankruptcy and $313 for a Chapter 13 bankruptcy, plus additional fees for required credit counseling and debtor education courses.
Common North Carolina Bankruptcy Misconceptions
Myth: Bankruptcy ruins your credit forever Reality: A Chapter 7 bankruptcy stays on your credit report for 10 years instead of the 7 years for a Chapter 13 bankruptcy, but many filers see credit score improvements within two years due to debt elimination.
Myth: You’ll lose everything you own Reality: Most North Carolina bankruptcy filers keep all their property through exemptions, especially in Chapter 7.
Myth: Everyone will know about your bankruptcy Reality: While bankruptcy records are public, most people never discover others’ bankruptcy filings unless they specifically search for them.
Making Your Decision: Chapter 7 or Chapter 13
The question of whether chapter 7 or 13 better fits your situation depends on your unique financial circumstances, goals, and assets. Consider these key factors:
- Income Level: If you pass the means test, Chapter 7 offers faster relief. If your income exceeds median levels, Chapter 13 might be your only option.
- Asset Protection Needs: Significant home equity, valuable vehicles, or business assets often require Chapter 13’s protection.
- Debt Types: Unsecured debt responds well to Chapter 7, while secured debt and priority obligations may benefit from Chapter 13’s restructuring.
- Timeline Preferences: Need immediate relief? Chapter 7 works faster. Want to keep assets and can manage payments? Chapter 13 provides more time and control.
- Future Goals: Consider how each chapter affects your long-term financial plans, credit recovery, and major purchases.
The choice between Chapter 7 and Chapter 13 isn’t just about eliminating debt—it’s about choosing the path that best protects your family’s future while providing the fresh start you need.
Key Takeaways
- Income determines eligibility: Chapter 7 requires passing the means test, while Chapter 13 needs regular income to fund repayment plans
- Timeline differs significantly: Chapter 7 concludes in 4-6 months, while Chapter 13 takes 3-5 years to complete
- Asset protection varies: Chapter 7 protects exempt property but may require liquidating valuable assets, while Chapter 13 lets you keep property by paying its value over time
- Debt treatment differs: Chapter 7 eliminates most unsecured debts completely, while Chapter 13 often requires partial payment through your plan
- North Carolina requires bankruptcy filers to use the state exemption system. Federal exemptions are not available, and mixing is not allowed.
- Both chapters stop creditor harassment: The automatic stay provides immediate protection from collections, foreclosures, and lawsuits
- Credit impact varies: Chapter 7 stays on credit reports for 10 years, Chapter 13 for 7 years, but both allow credit rebuilding during and after the process
Frequently Asked Questions
Q: Can I switch from Chapter 13 to Chapter 7 after filing? A: Yes, conversion is possible under certain circumstances, but you must qualify for Chapter 7 at the time of conversion and meet all eligibility requirements.
Q: Will I lose my job if I file for bankruptcy? A: Federal law prohibits most employers from firing employees solely because of bankruptcy filing. Government employers and employers dealing with money or securities have more latitude, but termination based solely on bankruptcy remains illegal.
Q: Can I keep my car in bankruptcy? A: Most North Carolina filers keep their vehicles through exemptions in Chapter 7, or by continuing payments in Chapter 13. The value and loan balance determine your options.
Q: How long after bankruptcy can I buy a house? A: FHA loans may be available two years after Chapter 7 discharge or one year into a Chapter 13 plan with court permission. Conventional loans typically require 2-4 years depending on circumstances.
Q: What debts survive bankruptcy? A: Student loans, recent tax debt, domestic support obligations, and debts from fraud or willful injury typically survive both Chapter 7 and Chapter 13 bankruptcy.
Q: Do I need a lawyer for bankruptcy? A: While self-representation is legal, bankruptcy law’s complexity and the long-term consequences of mistakes make legal representation highly advisable for most cases.
Q: Can married couples file bankruptcy together? A: Yes, joint filing is common and often more cost-effective than separate cases, though sometimes individual filing makes more sense depending on circumstances.
Q: Will bankruptcy stop foreclosure on my home? A: The automatic stay immediately stops foreclosure in both chapters, but Chapter 13 provides better long-term solutions for keeping your home by allowing you to catch up on missed payments over time.
Contact Us
Choosing between Chapter 7 and Chapter 13 bankruptcy represents one of the most important financial decisions you’ll ever make. The wrong choice could cost you your home, extend your recovery time by years, or leave you without the fresh start you deserve.
At the Law Office of Jack G. Lezman, PLLC, we’ve helped thousands of North Carolina families reclaim their financial futures through strategic bankruptcy planning. We don’t just file paperwork—we craft personalized solutions that protect what matters most to you while maximizing your debt relief.
When you work with our firm, you’ll receive personalized attention focused on your unique situation. We take the time to analyze your specific circumstances, review your assets and debts, and help you make informed decisions about your financial future.
Don’t let another day pass drowning in debt while creditors circle like vultures. Your financial recovery starts with a single conversation, and that conversation could be the turning point that saves your home, protects your assets, and gives your family the breathing room you need.
The path to financial freedom begins today. Contact the Law Office of Jack G. Lezman, PLLC now to schedule your free consultation and take the first step toward the fresh start you deserve.
