The North Carolina Homestead Exemption

If you're considering filing for bankruptcy in North Carolina and want to keep your home, North Carolina's homestead exemption will help. In bankruptcy, you can retain property you can "exempt" with a bankruptcy exemption. The homestead exemption protects home equity from creditors in bankruptcy.

In this article, you'll learn how to find North Carolina's current homestead exemption amount and apply it in your bankruptcy case. We also explain other requirements you must meet when filing for bankruptcy in North Carolina.

What Does North Carolina's Homestead Exemption Protect?

You can use the North Carolina homestead exemption to exempt equity in your home, condominium, or co-op if you or your dependents live on the property. You can also use it to protect a burial plot for you or your dependents. (N.C. Gen. Stat. § 1C-1601(a)(1).)

Example. Nelson owns two properties, a residential home he lives in with his children and a rental property he leases to tenants. Nelson can use North Carolina's homestead exemption to protect the equity in the residential house but not the leased property.

How Much Equity Will North Carolina's Homestead Exemption Protect?

Exemptions change periodically, and these figures are not being updated. You can meet with a bankruptcy attorney to learn current amounts and how exemptions apply to your situation.

The North Carolina homestead amount was $35,000 when we last checked on May 26, 2021, and $60,000 for those 65 and older "…if the property was previously owned as a tenant by the entireties or as a joint tenant with rights of survivorship and the former co-owner of the property is deceased." (N.C. Gen. Stat. § 1C-1601(a)(1).)

If you're unsure how to calculate home equity, here's what you'll do. Subtract the mortgage balance from the home's value (the price it would sell for). The difference is the "equity." It's the amount you could keep if you sold the home and paid off the home loan.

Example. Jem owes $125,000 on a home worth $150,000, giving her $25,000 in home equity. Jem can protect all her home equity in bankruptcy using North Carolina's $35,000 homestead exemption.

Where Can I Find the Current Homestead Exemption Amount?

You can search North Carolina's statutes online on the North Carolina General Assembly website. Look for N.C. Gen. Stat. § 1C-1601(a)(1)—you'll paste it into the citation box.

The exemption requirements will be in the statute and, possibly, the current exemption amount. However, many states don't post exemption amount increases in the statute when the exemption amount changes.

If the amount in the statute is less than we've posted, don't rely on it. A local bankruptcy attorney can give you the current homestead amount and evaluate whether you qualify to keep your home in bankruptcy.

Can Married Couples Double the Homestead Exemption?

Yes. North Carolina permits married couples to double the homestead exemption if they both own the home and file a joint bankruptcy—but not if it's one spouse's sole property.

Filing for bankruptcy with your spouse can be tricky, especially if one spouse has significant separate property. It could be used to pay the other spouse's debts. Learn more about important filing considerations for married couples.

Example. Andrew and Ali bought a home together shortly after marrying. Because they're both on the home's title and filed for bankruptcy together, they can double the homestead exemption.

Example. When Mari and Jorge filed for bankruptcy, they were living in a home Mari purchased before their marriage. The homestead exemption didn't qualify for doubling because Jorge had no ownership interest in the property.

Can I Use a Wildcard to Protect More Home Equity?

No, not in North Carolina. Some states have a wildcard exemption you can stack onto the homestead exemption. However, North Carolina's wildcard exemption isn't separate from the homestead exemption and doesn't help filers protect more home equity.

The wildcard exemption in North Carolina works by letting you apply any unused homestead exemption amount towards personal property up to $5,000. (N.C. Gen. Stat. § 1C-1601(a)(2)). (Amount valid as of May 26, 2021.)

What Happens If the North Carolina Homestead Exemption Doesn't Fully Protect My House?

When you can't exempt all your home equity, whether you keep or lose your house will typically depend on if you file for Chapter 7 or 13. Here are the basics.

The Chapter 7 Trustee Will Sell the Home

When a Chapter 7 filer's home has nonexempt equity, the Chapter 7 trustee assigned to the case will sell it and give the homestead exemption amount to the filer. The remaining proceeds pay sales costs, the trustee's fee, and "unsecured debts"—bills not secured by collateral, like most credit card balances, medical bills, and personal loans.

However, suppose the sales costs would eat up all the nonexempt equity, leaving nothing for creditors. In that case, the trustee would "abandon" the home, and you'd keep it.

Chapter 13 Filers Pay Creditors to Keep the Home

By contrast, the Chapter 13 trustee won't sell the home if the homestead exemption doesn't cover all the home's equity. Instead, the filer must pay unsecured creditors for the nonexempt equity through the Chapter 13 plan (however, you can deduct sales costs from the plan payment—the calculation allowance ensures creditors receive the same amount in Chapters 7 and 13).

A Chapter 13 plan typically lasts three or five years. You must be able to pay the monthly mortgage payment and catch up on any missed payments, but you can spread the arrearages over the the plan. Typically, Chapter 13 filers must also pay car payments when keeping a financed car and certain "priority debts" in full, such as recent income tax balances and support obligations. Other debts, like credit card balances and medical bills, often receive a fraction of what's owed.

Learn more about debts you must pay in Chapter 13 bankruptcy.

What Else Must I Do to Keep a House in Bankruptcy?

Filers behind on a mortgage will have additional hurdles to meet. For instance, in Chapter 7, you must be current on your mortgage payment when you file. Otherwise, you could lose your home. In Chapter 13, you must earn enough to afford the Chapter 13 payment, which is rarely easy.

Learn about your home in Chapter 7 and your home in Chapter 13.

Can I Use the Federal Bankruptcy Exemptions in North Carolina?

Some states allow bankruptcy filers to use federal bankruptcy exemptions instead of state exemptions. North Carolina isn't one of those states. If you reside in North Carolina, you must use the state exemptions (but you can protect more with North Carolina's homestead exemption than the federal exemption).

Find out more about North Carolina Bankruptcy Exemptions.

Can I Use the North Carolina Homestead Exemption If I'm New to the State?

You can file for bankruptcy in North Carolina after living there for over 180 days. However, you must live there for at least 730 days before using the North Carolina exemptions. Otherwise, you'd use the previous state's exemptions.

The calculation is different if you weren't living in one particular state two years before your bankruptcy filing. You'd use the exemptions of the state you lived in for most of the 180 days before the two years immediately preceding your filing. (11 U.S.C. § 522(b)(3)(A).)

Learn more about filing for bankruptcy after moving to a new state.

How to Claim the Homestead Exemption in North Carolina

You don't need to file a separate homestead declaration in your county recorder's office before claiming North Carolina's homestead exemption in bankruptcy. The procedure involves listing your home, its value, and the applicable exemption statutes in your bankruptcy petition.

Specifically, you'll list your property on Schedule A/B: Property and exemptions on Schedule C: The Property You Claim as Exempt.

Common Mistakes to Avoid When Using North Carolina's Homestead Exemption

Bankruptcy mistakes, such as improperly disclosing or exempting assets, can be costly and often occur when filing without a bankruptcy lawyer. A local bankruptcy lawyer's knowledge and expertise will help you avoid losing your home and other valuable assets and ensure you maximize the homestead exemption.

Need More Bankruptcy Help?

Did you know Nolo has made the law easy for over fifty years? It's true—and we want to ensure you find what you need. Below you'll find more articles explaining how bankruptcy works. And don't forget that our bankruptcy homepage is the best place to start if you have other questions!

We wholeheartedly encourage research and learning, but online articles can't address all bankruptcy issues or the facts of your case. The best way to protect your assets in bankruptcy is by hiring a local bankruptcy lawyer.