The good news is, most property can be protected in bankruptcy proceedings. North Carolina, like most states, allows you to protect most real and personal property by using “exemptions.”

Exemptions are determined by state and federal laws that allow you to keep most, if not all of your property. For example, the North Carolina, exemptions allow you to protect a car with up to $3,500 of equity using the motor vehicle exemption. You can protect most of your furniture using the household goods exemption. When the state legislatures enacted these exemption laws, they allowed people to keep the necessities of life instead of “throwing someone in the street” with no property if they filed bankruptcy. Generally, about 95% of our clients get to keep all of their property using the exemption laws when they file bankruptcy.

However, sometimes a client may have “non exempt” property which we cannot protect. In this event, the Chapter 7 Trustee could seize this property and sell the property to pay off a small percentage of the debtor’s debts. Let use an illustration to show how bankruptcy exemptions work:

John Doe has a car that is worth (using NADA) $10,000.  However, John Doe owes $6,000 on that car to his financing company.  Therefore, John Doe has $4,000 of equity in his vehicle ($10,000 value – $6,000 owed = $4,000 in equity).  In order to protect John Doe’s car we need to use the bankruptcy exemptions.  Since the car is in John Doe’s name we can use the maximum amount of his motor vehicle exemption of $3,500.  However, we are still left with $500 in what is called non-exempt equity.  In this case, we can protect that non-exempt equity using what’s called a “wild card” exemption.  In North Carolina you have $5,000 of a wild card exemption.  We would do what is called exemption stacking and put $500 of the “wild card” exemption on top of the motor vehicle exemption to protect the full $4,000 of equity in John Doe’s car.  If John Doe had more than $8,500 in equity in his car ($3,500 motor vehicle exemption + $5,000 “wild card” exemption = $8,500 maximum amount of equity to protect in an automobile) then we would have to either give up the car or we could try to work out some type of payment with the Trustee to allow him to keep his car.  Either way, it’s important that you consult your bankruptcy attorney if you believe that you have excess equity in your personal property.