The Short Answer
In most bankruptcy cases, exemption laws protect all or nearly all of your property — about 95% of our clients keep everything they own. When property can't be fully protected, the Chapter 7 Trustee has the authority to seize and sell it to pay a portion of your debts. But before that happens, we look at every available exemption, including NC's $3,500 motor vehicle exemption, $5,000 wildcard exemption, and others, to see if stacking them covers the gap. If non-exempt equity still remains, you may be able to negotiate a payment to the Trustee to buy back that equity and keep the property.
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.
Key Takeaways
- North Carolina's bankruptcy exemptions protect most property, including up to $3,500 of equity in a vehicle and up to $5,000 in any personal property through the wildcard exemption.
- When a single exemption doesn't fully cover an asset's equity, attorneys can "stack" multiple exemptions — for example, combining the motor vehicle and wildcard exemptions to protect up to $8,500 in car equity.
- Property with equity that exceeds all available exemptions is called "non-exempt" and can be seized and sold by the Chapter 7 Trustee to partially repay creditors.
- If you have non-exempt equity in a vehicle or other asset, you may be able to work out a payment arrangement with the Trustee to keep the property instead of surrendering it.
- Equity — not the value of the asset — is what matters for exemption purposes; what you owe on a loan reduces the equity the Trustee can reach.
- Consulting a bankruptcy attorney before filing is critical if you own property with significant equity, so nothing is left unprotected that could have been covered.
Attorney Insight
The mistake I see most often is clients assuming the motor vehicle exemption alone is all they have to work with — and then panicking when their car's equity runs over $3,500. What they don't realize is that North Carolina's $5,000 wildcard exemption can be applied to virtually any personal property, including vehicles, which means we can protect up to $8,500 in car equity through stacking. I've had clients come in ready to surrender a car they could have kept with a straightforward exemption strategy. Running these numbers before you file — not after — is exactly why you should have an experienced attorney review your assets first.
