If I file bankruptcy will I lose everything?

One of the biggest misconceptions I hear from prospective clients is the concern that the Bankruptcy Court will take all their property. I assure you, the Bankruptcy Court does not want your dusty old couch in the kid’s playroom or your favorite Mickey Mouse t-shirt. In fact, assuming that you have lived in North Carolina for over two (2) years, it is very likely that the Bankruptcy Court won’t be able to take ANY of your belongings.

When someone files bankruptcy, they are allowed to “exempt” certain property and belongings; by “exempting” property, the debtor is allowed to keep the property and it won’t be taken away by filing bankruptcy. These exemptions usually include a maximum dollar amount of equity in such items such as houses, cars, household goods, recent earnings from an employer, and other various items.

What can be exempted in bankruptcy?

Bankruptcy exemptions actually vary by State, but North Carolina exemptions like most States protect “normal” lifestyles.  Therefore, is it normal for someone to have average furniture in their house?  Is it normal for someone to have a 2004 automobile that’s paid off?  Is it normal to have a retirement account?  Is it normal to have a house with a mortgage on it, with a fair amount of equity in it? The answer to all these questions is “yes”. And accordingly, the laws in North Carolina generally state that you can file bankruptcy and keep all these things.  In essence, it’s a normal life and North Carolina protects normal lifestyles.

Conversely, North Carolina’s exemption laws don’t protect luxury, which I define as properties and belongings that are not normal. For instance, is it normal for someone to have an entire household of antique furniture and Picasso paintings? Is it normal to have a new BMW paid off? Is it normal to have a house or beach condo that’s completely paid off?  Is it normal to have your yacht docked up at Lake Norman??  Of course not! And North Carolina law does not attempt to protect property that is not normal; it does not protect luxury.

For the vast majority of prospective clients, their lives are simply normal. They have a normal life and normal stuff.  While all this is ‘generally speaking’ and deserves a more in depth conversation with an attorney, I can safely say that most people that look toward bankruptcy as a means to relieve their debt issue will not lose a single thing by filing bankruptcy….except debt and stress.