bankruptcy law book and gavel on wooden background

The Differences Between Chapter 7 &
Chapter 13 

Cannon Law Offices, PLLC Aug. 17, 2022

The financial curveballs of life can strike suddenly and make it difficult for you to settle debts, pay bills, or meet your other financial needs. When facing financial distress, filing for bankruptcy – Chapter 7 or Chapter 13 – is among the promising options to achieve the financial relief or clean slate you deserve. A professional North Carolina bankruptcy attorney can assess your unique situation and help select the right bankruptcy chapter for you.  

At Cannon Law Offices, we have the tools to provide reliable advocacy and precise legal guidance to clients in bankruptcy-related matters. Our trusted attorneys can educate you about the differences between Chapter 7 and Chapter 13 bankruptcy and when each one may be a good option for you. Our firm is proud to serve clients in Greenville and throughout eastern North Carolina, including the Outer Banks, Wilmington, Washington County, and Hyde County. 

Chapter 7 Bankruptcy 

Chapter 7 bankruptcy, also known as "liquidation" bankruptcy, can help individuals and business owners facing financial distress wipe out most of their general unsecured debts and achieve a financial clean slate. In Chapter 7 bankruptcy, the North Carolina court appoints a trustee (an independent contractor) to oversee the whole bankruptcy case. The trustee will gather and sell all your non-exempt assets, then use the net proceeds to settle some or all your creditors.  

Non-exempt assets are assets and property that can be sold in a Chapter 7 case. These include second vehicles, second homes, vacation homes, family heirlooms, bank accounts, bonds, cash, stocks, and other investments. However, you will still be left with your exempt assets, such as your primary home, car, furniture, household appliances, and clothing. 

Who Qualifies? 

To qualify for Chapter 7 bankruptcy in North Carolina, you must pass the bankruptcy "means test" and attend creditor counseling courses. The bankruptcy means test will:  

  • Review your financial history,  

  • Deduct payments and expenses, and  

  • Determine your amount of disposable income.  

You will pass the bankruptcy means test automatically if your income is less than the median income for your household size in North Carolina. With this, you can file for Chapter 7 bankruptcy. 

North Carolina's Median Income 

Below is the median income for each respective household size in North Carolina: 

  • One-person household — $53,687 

  • Two-member household — $70,000 

  • Three-member household — $76,386 

  • Four-member household — $94,269 

*Add $9,900 for each household in excess of four members. 

The figures listed above are for cases filed on or after May 15, 2022, but they're updated regularly. 

When Is Chapter 7 a Good Option? 

Chapter 7 may be a good option if:  

  • You own little assets.  

  • You have medical bills, personal loans, and credit card balances that can be eliminated or discharged.  

  • Your income is less than the median income for your household size in your state.  

A trained Chapter 7 bankruptcy attorney can consider your financial situation and determine whether Chapter 7 is right for you. 

Chapter 13 Bankruptcy 

Chapter 13 bankruptcy or "wage earner's" bankruptcy is available for people earning a reasonable income but have a huge debt burden. In a Chapter 13 case, you will propose a feasible repayment plan to settle down the debt using their future earnings. You will structure the repayment plan over a period of 3 to 5 years. However, the court must approve the proposed repayment plan.  

Through the Chapter 13 repayment plan, you can repay some or all of your debts over an extended period using your potential earnings. Also, you will keep your assets, including your home and vehicles. 

Who Qualifies? 

Additionally, you must have a "regular source of income" to qualify for Chapter 13 bankruptcy in North Carolina. You may be allowed to file under Chapter 13 protection if your income is more than the median income for your household size in the state. 

When Is Chapter 13 a Good Option? 

Chapter 13 may be a good option if:  

  • You own several assets, and you don't want to lose any.  

  • You have a regular source of income to pay into the repayment plan.  

  • Most of your debts are student loans, non-dischargeable tax, or domestic support debts. 

A practiced Chapter 13 bankruptcy attorney can review your financial circumstances and help decide if Chapter 13 is right for you. 

What Are the Differences Between Chapter 7 and Chapter 13 Bankruptcy? 

Here are some of the notable differences between Chapter 7 and Chapter 13 bankruptcy: 

Who Can File: To file for Chapter 7, you must pass the bankruptcy means test. In contrast, Chapter 13 is available to regular income earners who are overwhelmed with debts.  

What Happens to Your Debts: Filing for Chapter 7 wipes out most of your general unsecured debts. Conversely, filing for Chapter 13 will require you to pay back some or all of your creditors.  

How Do You Repay Your Debts: In a Chapter 7 case, the net proceeds from the sale of your non-exempt assets will pay back your creditors. Conversely, Chapter 13 requires paying back your debts through a debt repayment plan.   

What Happens to Your Assets: In a Chapter 7 case, your non-exempt assets will be sold. On the contrary, none of your assets will be sold under Chapter 13.  

However, each bankruptcy case is unique. An experienced bankruptcy attorney can evaluate your individual financial situation and help decide the right bankruptcy chapter for you. 

Getting the Legal Support You Need 

Filing for bankruptcy in North Carolina is a huge decision that requires a thorough evaluation. Understanding your available options, determining your eligibility, completing and filing your court forms, and attending court proceedings can make the entire process stressful. Therefore, when considering filing bankruptcy, consulting with a familiar bankruptcy attorney is crucial for true legal support and finding your possible options.  

At Cannon Law Offices, our attorneys have focused their careers on offering exceptional legal services and helping consumers navigate the complexities of North Carolina bankruptcy. As your legal counsel, we can apprise you about the benefits and drawbacks of each bankruptcy option and decide the ideal one for your specific financial situation. 

Contact Cannon Law Offices, PLLC, today to schedule a simple case evaluation with proficient bankruptcy attorneys. Our loyal legal team has the experienced legal counsel, assistance, and devoted advocacy you need to make intelligent decisions about bankruptcy. We are proud to serve clients in Greenville and throughout eastern North Carolina, including the Outer Banks, Wilmington, Washington County, and Hyde County.