If I file bankruptcy in North Carolina what property may I keep or claim as exempt?

Upon the filing of the bankruptcy petition all property that the debtor has an interest in becomes part of the bankruptcy estate. In order to retain the property, it must be claimed exempt. Exemptions are often designated in dollar amounts, rather than a specific item of property. In such cases, if the equity is within the applicable exemption dollar amount the property will normally be exempt. 


If you have lived in North Carolina for the 2 years prior to the filing of the bankruptcy case, the applicable exemptions will be the North Carolina Exemptions, plus applicable non-bankruptcy Federal exemptions (which are discussed below). In addition, certain assets never become part of the bankruptcy estate, and therefore cannot be reached by the bankruptcy trustee. The Bankruptcy Reform Bill passed in 2005 also added some additional limitations on exemptions that do not apply in the vast majority of cases. 


Claiming the proper exemptions and the application of each exemption can be complex, please feel free to contact us at (919) 889-1283 to get more information or you can contact us through the contact link by clicking here. 


Exemptions Under under N.C. General Statutes §1C-1601(a) 


N.C. General Statutes §1C-1601(a) provides, the following exemptions, which apply to each debtor, therefore, if a husband and wife file, the amounts are doubled: 


  • Residence or Burial Plot. $35,000 equity in real or personal property used by the debtor or a dependent of the debtor as a residence (i.e. a house or mobile home) or burial plot, for the debtor or a dependent of the debtor. ($60,000 in a residence for an unmarried widow or widower who is over 65 years of age, so long as the property was owned by the debtor with the deceased spouse as a tenant by the entireties or as a joint tenant with right of survivorship). 
  • Wild Card. $5,000 in any property, less any amount above $30,000 used to claim a residence or burial plot (or less any amount above $55,000 for an unmarried widow or widower over 65, claiming the higher exemption noted above) in N.C. Gen. Stats. Sec. 1C-1601(a)(1). 
  •  Motor Vehicle. $3,500 in one motor vehicle.
  • Household and Personal Items.  $5,000 in household furnishings, household goods, wearing apparel, appliances, books, animals, crops or musical instruments held primarily for the personal, family, or household use of the debtor or a dependent of the debtor. This is increased by $1,000 for each dependent of the debtor, not to exceed an additional $4,000. 
  • Tools of Trade. $2,000 in any implements, professional books, or tools of the trade of the debtor or a dependent of the debtor. 
  • Cash Value in Life Insurance. The debtor may exempt the cash value in whole life insurance provided the beneficiary on such policy is the spouse and/or children of the debtor, as provided in Article X Section 5 of North Carolina Constitution.
  • Professionally Prescribed Heath Aids. The debtor may exempt professional prescribed health aids of the debtor or a dependent of the debtor. 
  • Compensation for Personal Injury. Compensation for personal injury, including compensation from a private disability policy, annuity or compensation for the death of a person upon whom the debtor was dependent for support (is not exempt from the claims for funeral, legal, medical, dental, hospital and health care charges relating to the accident or injury giving rise to the compensation). 
  • Individual Retirement Plans. The debtor may exempt an individual retirement plans (as defined in the Internal Revenue Code (title 26 of the United States Code), and any plan treated in the same manner under the Internal Revenue Code), including IRAs (26 USC Sec. 409(a)), Roth IRAs (26 USC Sec. 408A), or individual retirement annuities (26 USC Sec. 408(b)). Note: unlike IRA’s, 401k’s do not become part of the Bankruptcy Estate at all. See Paterson v. Shumate, 504 U.S. 753, 112 S.Ct. 2242 (1992) (See discussion below). 
  • 529 Plans. The Debtor may exempt a 529 college savings plan, not to exceed a commutative limit of $25,000, but excluding any amount placed in such plan within the 12 months preceding the filing of the case, unless such contributions were made consistent with the Debtor’s past pattern of contributions. The funds are exempt only to the extent the funds are for a child of the Debtor and will actually be used for such child’s college expenses. 
  • Retirement Plans of Other States. The Debtor may exempt the retirement benefits under the retirement plans of other states and governmental units of other states. 
  • Alimony, Support, Separate Maintenance and Child Support Payments. The Debtor may exempt alimony, support, separate maintenance and child support payments, whether received or to which the Debtor is entitled, but is limited to the extent such payments or funds are reasonably necessary for the support of the Debtor or a dependent of the Debtor. 


NOTES CONCERNING EXEMPTIONS UNDER N.C. GEN. STATS. 1C-1601. The exemptions listed above are the extent of the exemptions allowed under NC Gen. Stats. 1C-1601.  There are, however, other exemptions provided for under North Carolina law. 


There are also certain limitations placed on the above exemptions for recent purchases of items that may be exempted under the wild card, motor vehicle, household good or tool of trade exemptions.  In this regard, if items purchased within 90 days of the filing date cannot be directly traced to exempt property (with no additional property used to purchase the property) those items cannot be claimed exempt under the wild card, motor vehicle, household good or tool of trade exemptions. 


The exemptions are inapplicable to (i) the United States, or its agencies as may be provided by Federal Law, (ii) the State or its subdivision for taxes, appearance bonds or fiduciary bonds; (iii) a lien of a laborer or mechanic for work done for the person claiming the exemption by only as the specific property affected; (iv) for payment of obligations contracted for the purchase of the specific real property affected. 


There are also certain alternative exemptions to these set forth in N.C. Gen. Stats. §1C-1601, outlined above. Those are provided under N.C. Gen. Stats. §1C-1602, which allow the Debtor to elect the personal property and homestead exemption provided in Article X of the North Carolina Constitution, namely, $1,000 in real property owned and occupied by the Debtor and $500 in value of personal property. Because of the lower amounts provided for in the North Carolina Constitution, it is rarely advisable to elect these lower exemption amounts.


Other North Carolina Exemptions. 


There are numerous other exemptions provided under North Carolina law, other than that set forth in N.C. Gen. Stats. Sec. 1C-1601(a), including: 


  • Wages. The Debtor may exempt certain wages and earnings from self-employment to the extent that such are earnings from personal services are earned within 60 days prior to the petition and are necessary for the support of the Debtor or his family. N.C. Gen. Stats. §1-362. 
  • Public Assistant Payments. Payments made for public aid and assistance (N.C. Gen. Stats 108A-36). 
  • Unemployment Compensation. (N.C. Gen. Stats. Sec. 96-17). 
  • Motor Vehicle Financial Responsibility Deposits. (N.C. Gen. Stats. Sec. 20-279.25). 
  • Payments to Fraternal Benefit Societies. (N.C. Gen. Stats. Sec. 58-25-85). 
  • Workers Compensation Benefits. (N.C. Gen. Stats. Sec. 97-21). 
  • Teacher and State Employee Pensions, Retirement Benefits and Deferred Compensation. (N.C. Gen. Stats. Secs. 135-9 and 147-9.4). 
  • Local Government Employee Retirement Benefits. (N.C. Gen. Stats. Sec. 128-31). 
  • Retirement Benefits Paid to Fireman, Rescue Squad Workers and Law Enforcement Officers. (N.C. Gen. Stats. Secs. 58-86-80 and 143-166.30).
  • Retirement benefits paid to Legislators. (N.C. Gen. Stats. Sec. 120-4.29).
  • Benefits Paid Under the Supplemental Retirement Income Act of 1984. (N.C. Gen. Stats. Sec. 135-95). 
  • Disability Benefits. (N.C. Gen. Stats. Sec. 135-111). 
  • Policies or Proceeds of Group Life Insurance. (N.C. Gen. Stats. Sec. 58-58-165). 
  • Crime Victim Compensation. (N.C. Gen. Stats. Sec. 15B-17). 
  • A Partner’s Interest in Specific Partnership Property. (N.C. Gen. Stats. Sec. 59-55). 
  • Payments Awarded to the Blind for Aid and Assistance. (N.C. Gen. Stats. Sec. 111-18). 


North Carolina Case Law Exemptions. 


  • Real Property Held as Tenancy by the Entireties.  Tenancy by the Entireties Property is Exempt Except as to Joint Creditors and Taxing Authorities. Although, use of this exemption is complex, property is tenancy by the entireties property if it is: (i) real estate; (ii) located in the state of North Carolina; (iii) owned jointly by a husband and a wife (if real property is acquired while married it will be tenancy by the entireties property, unless the deed clearly states otherwise. However, if property is jointly owned and the joint owners subsequently marry the property does not automatically become tenancy by the entireties property – a new deed must be re-recorded). See Generally, Grabenhofer v. Garrett, 260 118, 131 S.E.2nd 765 (1963). 


Tenancy by the Entireties property is 100% exempt from the claims of the separate claims of each spouse, except for federal taxes. However, it is not exempt from the claims of joint creditors (claims that are owned jointly by a husband and a wife). It is, therefore, important that there are no joint debts in a case before this exemption is relied upon in bankruptcy. It is also important to note that North Carolina law is also clear that most medical bills are going to be joint debts, other than for cosmetic type procedures. 


If available this can be one of the most important exemptions available under North Carolina Law. As an illustration, I have had a prior client keep 19 million dollars of tenancy by the entireties property (including office buildings, and apartment complexes) against the substantial claims of the EPA. 


The Tenancy by the Entireties ownership can be destroyed by (i) death (the surviving spouse becomes the sole owner as a matter of law); (ii) divorce; and (iii) voluntary partition by both spouses. 


Non-Bankruptcy Federal Law Exemptions. 


Numerous other non-bankruptcy federal law exemptions exist including: 


  • Foreign Service Retirement and Disability Payments. (22 USC Sec. 4060). 
  • Civil Service Retirement Benefits. (5 USC Sec. 8346). 
  • Railroad Retirement Act Annuities and Pensions. (45 USC Sec. 231m). 
  • Veterans benefits. (38 USC Sec. 5301). 
  • Special Pension Paid to Winners of Congressional Medal of Honor. (38 USC Sec. 1562).
  • Annuities Payable for Service in the General Accounting Office. (31 USC Sec.776).
  • Social Security Benefits. (42 USC Sec. 407). 
  • Injury or Death Compensation Payments from War Risk Hazards. (42 USC Sec. 1717). 
  • Wages Owing a Master or Seamen, Exempt for Support of a Spouse And/or Minor Children. (46 U.S.C. Sec. 11109). 
  • Longshoremen and Harbor Workers Compensation Act Death and Disability Benefits. (33 USC Sec. 916). 


Property Effectively Exempt. 


Finally, other property may be effectively “exempt” by operation of the definition of “property of the estate” in 11 USC Sec. 541. 


  •  401k Plans and 403b Plans. As stated above, the United States Supreme Court has held that ERISA qualified plans such as 401k and 404b plans and other ERISA qualified retirement plans do not become part of the bankruptcy estate and the result is to make such plans unreachable by creditors and thus the Bankruptcy Trustee. SeePaterson v. Shumate, 504 U.S. 753, 112 S.Ct. 2242 (1992). 


Please feel free to contact us at (919) 889-1283 to get more information or you can contact us through the contact link by clicking here. 


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