In North Carolina, there are many statutory and common law protections in place that help a debtor keep their wages and property, even in the face of claims by credit card companies or other creditors. North Carolina has stringent restrictions on wage garnishment, about which you can learn here. Even outside of the wage garnishment context, North Carolina exemptions can help you keep real and personal property from the reach of your creditors.
What is an Exemption?
The legal term “exemption,” in the creditor-debtor setting, is a fancy term for “protection.” North Carolina General Statute § 1C-1601 protects property from the claims of creditors up to a certain value. The rationale for this protection is that all North Carolina citizens are entitled to certain real and personal property as a matter of right. Importantly, exemptions do not necessarily protect the value of that property, but rather, the amount of equity you have in the property. This can be very important when you have a valuable asset which has a lien or security interest on it—you still can protect that property as exempt as long as the equity you own falls within the statutory guidelines.
If you have not already gathered, determining whether your property is exempt can be a difficult and complicated exercise. There are many variables that can affect exemptions, including instances where property is co-owned, where property is owned with a spouse, where property has been recently acquired, where property is not a residence, and various other examples. Here is a grossly oversimplified, and non-exhaustive, list of those exemptions which are commonly used in North Carolina:
Real Property can be exempted up to $35,000 in equity. There are various caveats to this exemption, which is commonly called the “homestead” exemption. Importantly, you must be residing in the real property to use the homestead exemption. If you are (1) sixty-five or older, (2) hold the property as a joint tenant or tenant by the entirety, and (3) the surviving spouse has passed, then this exemption is increased to $60,000 in equity. Property owned as tenants by the entirety is exempt without any equity limit with respect to the debts of one spouse (ex. your spouse has a judgment against her for a credit card debt but you are not listed on the judgment and the property is owned by the entirety). In the event that the debt is joint, you are permitted to each use your $35,000 exemption, which means that you can protect up to $70,000 in equity in your primary residence.
In North Carolina, you can claim an exemption up to $3,500 in equity in a single vehicle. Please keep in mind that this exemption may not apply if you have purchased the vehicle within 90 days of claiming the exemption.
Household goods can be exempted up to $5,000 per debtor. You are permitted an additional $1,000 per dependent of the debtor (for up to $4,000 extra) as well. Household exemption typically includes clothing, furnishings, appliances, books, and other household items that are used as part of everyday residential existence.
In North Carolina, most retirement savings accounts are 100% exempt. All tax exempt retirement accounts are fully exempt, including 401(k), 403(b), and simple IRAs are exempt under NC statute. State and federal employee retirement contribution plans typically receive full protection as well. This is why we typically discourage our debtors from withdrawing or taking loans against 401(k) accounts, absent extenuating circumstances.
Wildcard Exemption and Other Exemptions
There are other relevant exemptions too numerous to name here, including property such as the following: tools of the trade, life insurance, personal injury compensation, prescribed health aids, public benefits, and alimony/child support payments. There exists what is called a “wildcard” exemption under the North Carolina statutory scheme, as well, which allows you to claim up to $5,000 in any property, provided that you have used less than $30,000 of your homestead exemption. This can be a helpful tool for allowing flexibility in developing your exemptions.
When Do I Need Exemptions / Why Should I Worry about This?
If you are a North Carolina resident, it is important to know how you are exposing your assets when you contract for a debt. Specifically, though, these exemptions are most important in the event that you have been served with a lawsuit or a Notice of Right to Claim Exemptions. Exemptions are also important in the Chapter 7 bankruptcy context, because they dictate which assets are available to the bankruptcy trustee for sale to your creditors. In the event that you have been served with a Notice of Right to Claim Exemptions, you typically have 20 days to respond before waiving your right to claim exemptions. It is essential that you talk to an attorney about the potential ramifications of a Motion to Claim Exemptions. Give Coltrane Grubbs & Orenstein a call to set up a consultation today (336-996-4166)!