Collections Blog Post 7: Debtors' Rights and Exemptions

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Collecting against a debtor with limited money/assets can be challenging, in practice.  North Carolina law allows debtors the right to exempt some of their property from collection.   The Law Offices of Peter D. Isakoff knows how to navigate these complexities of NC Collections law to get you paid after your Court win.

In North Carolina, the Judgment Creditor must serve upon an individual Judgment Debtor, as opposed to a Corporation or LLC, a Notice of Rights and a blank Motion to Exempt Property. Our Fourth Circuit Court of Appeals has ruled that such Notice must contain a notice to the debtor that “There are certain exemptions under state and federal law which the debtor may be entitled to claim with respect to the attached property, and that there is available a proper procedure for challenging the attachment.” Reigh v. Schleigh, 784 F.2d. 1191(4th Cir. 1986).

If a Judgment Debtor is domiciled in the State of North Carolina, certain of the debtor’s real and personal property is exempt from attachment, levy, seizure or sale in the enforcement of a judgment under North Carolina’s Exemption statute. N.C. G.S. § 1C-1601, et seq. The North Carolina Exemption statute continues and remains effective in bankruptcy proceedings. 11 U.S.C. §522 (b)(2).

The following types and amounts of real and personal property are protected by the North Carolina Exemption statute:

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 Judgment Debtor by the entireties or as a joint Judgment Debtor 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.

N.C. General Statute § 1C-1601.

Certain of the above-listed properties are totally exempt from levy and attachment. Where the exemption sets a dollar limit, the Sheriff may conduct a public sale involving that exempt property. If the execution and sale is conducted, the exempted proceeds are deposited with the Clerk of Court and the balance of the auction proceeds goes to the Judgment Creditor.

There are other assets or property rights of a Judgment Debtor which may be exempt from levy, attachment or judicial lien. For instance, proceeds and cash surrender values of life insurance are exempt from creditors of the person insured.  See N.C. General Statute § 1C-1601; N.C. Const. Artic. X, § 5.  Federal statutes and regulations also provide exemptions for a bankrupt or Judgment Debtor: certain retirement accounts, 11 U.S.C. §522(b)(3)(C); Federal Civil Service disability and death benefits, 5 U.S.C.A. §8130; Civil Service employee pensions, 5 U.S.C.A. §8346(a); military survivor benefit plan annuities, 10 U.S.C.A. §§1440 and 1450(i); certain Veterans benefits, 38 U.S.C.A. §§3101(a), 1970(g), 5301(a) and 42 U.S.C.A. §1701. This list is not all-inclusive. There are additional exemptions available to law enforcement officers, CIA employees, recipients of FEMA benefits and others.

            The Collections process can be complicated and confusing, especially when navigating debtor’s rights.  By knowing the procedural rules, Judgment Creditors can minimize the risk of loss and better position themselves in their collections.  If you need thorough and aggressive legal representation getting paid what you’re owed, please contact The Law Offices of Peter Isakoff anytime, day or night, at (336) 863-8348 (Main) or (336) 864-9115 (Español).

DISCLAIMER: The information in this article is provided for informational purposes only. It is not offered as and does not constitute legal advice. The accuracy of the information may change pending changes in applicable law. If you have questions about a specific matter, you should contact a lawyer. The use of this article or any information provided in it does not establish any lawyer/client relationship.