North Carolina Exemptions

To collect on a judgment in North Carolina, a creditor is required to have the sheriff serve the debtor with two pieces of paper – one is a “Notice of Rights to Have Exemptions Designated” and the other is a “Motion to Claim Exempt Property.”  These are very very important.  If you receive this do not ignore it because if you do not claim your statutory exemptions by timely filing the motion with the court, then they are considered waived and even if your property would have been exempt otherwise, the statutory exemptions do not apply.

North Carolina’s exemptions also were crafted during the Civil War and North Carolina offers both constitutional and statutory exemptions.  A debtor can choose one or the other.  I can’t emphasize this enough – choose the STATUTORY exemptions as they are much more generous.

The constitutional exemptions are very limited.  Under the constitutional exemptions, a debtor can exempt $500 worth of personal property and a homestead exemption of $1,000.  While this may have been considered a generous sum when the statutes were enacted, it is almost laughable today.  The only reason why a debtor would choose the constitutional exemption is that the exemption can never be waived and can be asserted at any time prior to the seizure of property.  So if you have failed to file your statutory exemptions, you at least can exempt the amount granted by the constitutional exemptions when the sheriff comes to seize your stuff.  For a link to the North Carolina Constitution, go here: http://www.ncleg.net/Legislation/constitution/article10.html.  The exemptions are found in Article 10 of the North Carolina Constitution and N.C.G.S. § 1C‑1602.

The statutory exemptions are not limited to bankruptcy unlike Georgia.  For a complete listing of the statutory exemptions see  N.C.G.S. § 1C‑1601 [FN 1]  below.  For most people, these include up to $30,000 equity in real property used as your primary residence, $5,000 in personal property, $3,500 in equity for your car and a $5,000 wildcard which you can use to exempt bank accounts, excess equity in land or a car or any other items.   Other exemptions not included in this list are a debtor’s earnings for the past 60 days.  Retirement benefits, like IRAs and other ERISA qualified benefits may be exempt.  However, non-ERISA qualified benefits like some 403(b) plans, while exempt in bankruptcy, are not necessarily exempt by state law.  Social Security, Veteran’s Benefits or any other federal benefit is also exempt.

When you receive the motion to claim exempt property, you have 20 days to fill it out and return it to the court.  Just sending it to the lawyer for the creditor is not enough.  It actually has to be filed with the court by the due date.  You can then mail a copy of the filed exemptions to the creditor.  While I recommend that debtors actually go to the courthouse and file this, if you mail it, make sure that the exemptions will be received by the court and docketed on or before the 20th day or else they will be deemed untimely.

If you are completely running out of time, don’t panic.  North Carolina provides an alternate procedure for designating exemptions.  A debtor can file a written request with the Clerk of Court requesting a hearing.  The written request must be filed with the clerk on or before the 20th day.  Upon receipt of the request, the clerk will arrange for a hearing and notify the debtor and creditor of the hearing date.  The debtor must attend the hearing and can assert the statutory exemptions at that time.  There are no special forms for this.

Once the exemptions are filed with the court and sent to the creditor or the creditor’s attorney, the creditor has 10 days to object and file objections.  If objections are filed, the clerk will schedule a hearing and notify the debtor.  If the debtor hears nothing, then objections were not filed.  The clerk then designates whatever property is claimed by the debtor as exempt and a writ of execution issued.  The exemptions will then be sent to the sheriff along with the writ.  The sheriff will do a very limited asset search confined to the real estate and tax records.  if the sheriff knows about a bank account that a debtor has not protected, the sheriff will attempt to seize that as well.  If the sheriff finds no assets that can be seized, the sheriff is going to contact the debtor to try and get the debtor to pay voluntarily.  If the debtor has no funds, the debtor needs to convey that to the sheriff.  The debtor is not obligated to pay or to even let the sheriff in the debtor’s home (unless the sheriff is evicting a homeowner after foreclosure or evicting a tenant from a rental the sheriff cannot enter a debtor’s home to collect on a judgment).

Writs of execution are good for 90 days.  They expire after that but can be re-issued any number of times.  If a creditor is going to do this, a creditor may wait 6 months or longer before again attempting to collect as a debtor’s circumstances may have changed.

Some counties in North Carolina may follow the procedure whereby once the exemptions are designated they do not have to be re-filed in order for the creditor to collect.  However, more commonly other counties require the debtor to again be served with a notice of rights and motion to claim exempt property if a creditor wants to try to execute again.

[FN 1]  N.C.G.S § 1C-1601.  What property exempt; waiver; exceptions.

(a)        Exempt property. – Each individual, resident of this State, who is a debtor is entitled to retain free of the enforcement of the claims of creditors:

(1)        The debtor’s aggregate interest, not to exceed thirty-five thousand dollars ($35,000) in value, in real property or personal property that the debtor or a dependent of the debtor uses as a residence, in a cooperative that owns property that the debtor or a dependent of the debtor uses as a residence, or in a burial plot for the debtor or a dependent of the debtor; however, an unmarried debtor who is 65 years of age or older is entitled to retain an aggregate interest in the property not to exceed sixty thousand dollars ($60,000) in value so long as the property was previously owned by the debtor 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.

(2)        The debtor’s aggregate interest in any property, not to exceed five thousand dollars ($5,000) in value of any unused exemption amount to which the debtor is entitled under subdivision (1) of this subsection.

(3)        The debtor’s interest, not to exceed three thousand five hundred dollars ($3,500) in value, in one motor vehicle.

(4)        The debtor’s aggregate interest, not to exceed five thousand dollars ($5,000) in value for the debtor plus one thousand dollars ($1,000) for each dependent of the debtor, not to exceed four thousand dollars ($4,000) total for dependents, in household furnishings, household goods, wearing apparel, appliances, books, animals, crops, or musical instruments, that are held primarily for the personal, family, or household use of the debtor or a dependent of the debtor.

(5)        The debtor’s aggregate interest, not to exceed two thousand dollars ($2,000) in value, in any implements, professional books, or tools of the trade of the debtor or the trade of a dependent of the debtor.

(6)        Life insurance as provided in Article X, Section 5 of the Constitution of North Carolina.

(7)        Professionally prescribed health aids for the debtor or a dependent of the debtor.

(8)        Compensation for personal injury, including compensation from private disability policies or annuities, or compensation for the death of a person upon whom the debtor was dependent for support, but such compensation is not exempt from claims for funeral, legal, medical, dental, hospital, and health care charges related to the accident or injury giving rise to the compensation.

(9)        Individual retirement plans as defined in the Internal Revenue Code and any plan treated in the same manner as an individual retirement plan under the Internal Revenue Code, including individual retirement accounts and Roth retirement accounts as described in section 408(a) and section 408A of the Internal Revenue Code, individual retirement annuities as described in section 408(b) of the Internal Revenue Code, and accounts established as part of a trust described in section 408(c) of the Internal Revenue Code. Any money or other assets or any interest in any such plan remains exempt after an individual’s death if held by one or more subsequent beneficiaries by reason of a direct transfer or eligible rollover that is excluded from gross income under the Internal Revenue Code, including, but not limited to, a direct transfer or eligible rollover to an inherited individual retirement account as defined in section 408(d)(3) of the Internal Revenue Code.

(10)      Funds in a college savings plan qualified under section 529 of the Internal Revenue Code, not to exceed a cumulative limit of twenty-five thousand dollars ($25,000), but excluding any funds placed in a college savings plan account within the preceding 12 months (except to the extent any of the contributions were made in the ordinary course of the debtor’s financial affairs and were consistent with the debtor’s past pattern of contributions) and only to the extent that the funds are for a child of the debtor and will actually be used for the child’s college or university expenses.

(11)      Retirement benefits under the retirement plans of other states and governmental units of other states, to the extent that these benefits are exempt under the laws of the state or governmental unit under which the benefit plan is established.

(12)      Alimony, support, separate maintenance, and child support payments or funds that have been received or to which the debtor is entitled, to the extent the payments or funds are reasonably necessary for the support of the debtor or any dependent of the debtor.