Filing Bankruptcy is a way for someone to wave their white flag and acknowledge their inability to pay their debts and ask for federal protection from their creditors and lasting relief. A Bankruptcy case is initiated by the filing of a petition with a Bankruptcy court such as the U.S. Bankruptcy Court of the Northern District of Georgia, which covers all of Atlanta metro counties through their four divisional locations. Upon filing a Bankruptcy petition, a wide-ranging system of laws and procedures replace typical debt collection procedures in a given jurisdiction, which has a profound impact on the debtors and creditors. Bankruptcy takes several forms that can achieve different goals. For the average person, the only two forms of Bankruptcy that would be relevant and of use are Chapter 7 and Chapter 13 Bankruptcy; whose names correspond to their respective chapters in the Bankruptcy Code.
Chapter 7 Bankruptcy, often called “Liquidation” or “Complete Bankruptcy”, allows someone (if qualified) to discharge all of their debts, while retaining all or most of their assets. Chapter 13 Bankruptcy, often called “Wage Earner’s Bankruptcy”, allows people to make an affordable payment plan to repay their debts while avoiding losing assets such as your home, car, or savings. It is important to understand what each chapter offers and whether or not you would qualify, as such, I have gone into more detail on each chapter on their own. Click one of the links above to review each chapter.
Chapter 7 Bankruptcy (Liquidation)
Liquidation under Chapter 7 of the bankruptcy code involves the surrender and dissolution of your assets that are not exempt (under Georgia Bankruptcy Exemptions) for the purpose of paying your creditors. After the filing of a bankruptcy petition, a trustee is appointed who is responsible for collecting the nonexempt unencumbered assets, turning them into liquid form, and making distributions to creditors who have proved a claim. The funds are paid out to creditors in the Bankruptcy Code’s order or priority.
In most cases, creditors who hold non-priority unsecured claims (often credit cards), receive either only a small fraction or none of their claim. There is rarely any nonexempt property in most Chapter 7 cases, as such, there is unlikely to be a liquidation of a Chapter 7 filers assets. Nonetheless, if there are nonexempt assets, following this dissolution of nonexempt assets and then distribution of those assets to the creditors, the unpaid balance is usually discharged (the forgiveness of the balance of debts that are not paid in full in the bankruptcy case).
One of the biggest immediate benefits of hiring an attorney and filing is that all calls from creditors are to stop. Once you hire an attorney, you can simply give them your attorney’s information and creditors are bound to contact your attorney regarding the debt, not you. Also, upon filing, an “automatic stay” order prevent creditors from attempting to contact or collect from you during the bankruptcy process; meaning that foreclosure and repossession proceedings are halted until dealt with through the bankruptcy process.
Chapter 7 Eligibility
Chapter 7 Bankruptcy eligibility for an individual, whose debts are primarily consumer debts, is limited by the requirement of the court to dismiss a Chapter 7 case if it finds that the granting of relief would be an abuse of Chapter 7. Abuse is presumed if an individual consumer debtor has disposable income deemed sufficient to make payments under a Chapter 13 plan. The determination of whether or not an individual has sufficient income to pay under a Chapter 13 case has come to be known as the “means test.”
Further, Bankruptcy, under Chapter 7, is not available if the individual has filed a Chapter 7 bankruptcy case within the preceding 180 days. In addition, Chapter 7, or any other chapter of the Bankruptcy Code, is unavailable to an individual unless they have received credit counseling from an approved agency within 180 days before filing.
Often times, the decision to file for Chapter 7 is a matter of the ability to qualify to file for Chapter 7 and the desire to keep property that is nonexempt (savings, investments, home equity in excess of the exemptions), but also in the cases of large delinquencies in mortgage payments in the face of foreclosure (Chapter 13 allows debtors to cure delinquent mortgage payments over time).
Chapter 13 Bankruptcy (Reorganization)
Reorganization under Chapter 13 of the bankruptcy code, entitled Adjustment of Debts of an Individual With Regular Income, allows people with a regular income to make a plan, over three to five years, to repay all or part of their debts while retaining all of their property. If a person’s currently monthly income is less than the state median, the plan will be for three years unless the court finds reason for a longer period. If a person’s current monthly income is more than the state median, the plan will be for five years, but in no case can a plan be for more than five years. The “automatic stay” order prevents creditors from collection efforts, outside of the bankruptcy process, for the duration of the plan assuming regular payments for secured property are maintained throughout the plan.
Chapter 13 Eligibility
One can is eligible for Chapter 13 relief if their unsecured debts are less than $394,725 and their secured debts are less than $1,184,200. Further, bankruptcy, under Chapter 13, is not available if someone has filed a bankruptcy case within the preceding 180 days. Chapter 13, or any other chapter of the Bankruptcy Code, is unavailable to someone unless they have received credit counseling from an approved agency within 180 days before filing.
How Chapter 13 Works
A Chapter 13 Bankruptcy case begins by filing a petition with the bankruptcy court of relevant jurisdiction. Upon the filing of a Chapter 13 petition, a trustee is appointed to administer the case by evaluating the case and serving as a disbursing agent to collect payments from the debtor and make distributions to creditors. In contrast to a Chapter 7 Bankruptcy, a Chapter 13 case requires debtor’s to file a repayment plan with the petition or within 14 days after the petition is filed, unless the court grants an extension. The plan must provide for payments of fixed amounts to the trustee on a regular basis, usually biweekly or monthly. The trustee then distributes the funds according to the terms of the plan. Plan payments must commence within 30 days after the filing of the bankruptcy case, whether or not the plan has been approved by the court by that time.
After the filing of the Chapter 13 Bankruptcy, between 21 and 50 days, the Chapter 13 trustee will hold a meeting of creditors. The meeting of creditors is a relatively informal hearing held by the bankruptcy trustee where the debtor will be sworn in and asked questions about their financial affair and the proposed terms of the plan; the meeting will also be open for creditors to attend and ask questions. During the meeting of creditors or shortly thereafter is usually when problems with the plan are resolved with creditors and the trustee.
Within 45 days following the meeting of creditors, the debtor , chapter 13 trustee, and creditors wishing to attend, a Confirmation Hearing on the debtor’s chapter 13 repayment plan must be held by the bankruptcy judge. The judge must decide wither or not the plan is feasible and meets the standards for confirmation as set forth in the Bankruptcy Code.
What is a Chapter 7 Bankruptcy?
Chapter 7 Bankruptcy, also known as liquidation or straight bankruptcy, involves the your nonexempt assets being applied to your debts where after most, if not all, of your unsecured debt will be discharged, or wiped out.
Most Chapter 7 Bankruptcy filers do not have any nonexempt assets, as such there is rarely a true “liquidation.”
What is a Chapter 13 Bankruptcy?
Chapter 13 Bankruptcy, also known as reorganization bankruptcy, is intended for individuals with a regular income that is above the prescribed limit in the Bankruptcy Code allowing them to pay off a portion of their debts over three to five years.
Should I file under Chapter 7 or Chapter 13?
The answer to this question is very fact dependent and is based on your goals in filing for bankruptcy (discharge debt, save a house, and/or repay debts over time), your income, and your assets. It is best to talk to an experienced bankruptcy attorney to determine which chapter will be most beneficial for your unique situation.
Will filing for bankruptcy stop bill collectors from calling?
The Fair Debt Collection Practices Act protects debtors from calling a debtor that they know is represented by an attorney. Once you communicate that you are represented by an attorney and give their their contact information, the calls should stop. If they do not stop, be sure to document who called, when they called (day and time), and what was said, because the debt collector may be subject to civil penalties that can be awarded to you.
Can I use bankruptcy to stop foreclosure on my home?
Yes. The moment a bankruptcy case is filed an Automatic Stay on debt collection efforts is placed in effect by the Bankruptcy Court, which will stop (or invalidate) a foreclosure sale, even if the filing is moments before the home is sold at auction.
Can I use bankruptcy to stop repossession of my car?
Yes. Like above, the moment a bankruptcy case is filed an Automatic Stay on debt collection efforts is placed in effect by the Bankruptcy Court, which will stop a repossession, even if the filing is moments before said repossession.
Georgia Bankruptcy Exemptions
§ 44-13-100. Exemptions for purposes of bankruptcy and intestate insolvent estates
(a) In lieu of the exemption provided in Code Section 44-13-1, any debtor who is a natural person may exempt, pursuant to this article, for purposes of bankruptcy, the following property:
(1) The debtor’s aggregate interest, not to exceed $21,500.00 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. In the event title to property used for the exemption provided under this paragraph is in one of two spouses who is a debtor, the amount of the exemption hereunder shall be $43,000.00;
(2) The debtor’s right to receive:
(A) A social security benefit, unemployment compensation, or a local public assistance benefit;
(B) A veteran’s benefit;
(C) A disability, illness, or unemployment benefit;
(D) Alimony, support, or separate maintenance, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor;
(E) A payment under a pension, annuity, or similar plan or contract on account of illness, disability, death, age, or length of service, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor;
(F) A payment from an individual retirement account within the meaning of Title 26 U.S.C. Section 408 to the extent reasonably necessary for the support of the debtor and any dependent of the debtor; and
(G) Moneys paid into or out of, the assets of, and the income of a health savings account or medical savings account authorized under Chapter 51 of Title 33 or Sections 220 and 223 of the Internal Revenue Code of 1986.
(2.1) The debtor’s aggregate interest in any funds or property held on behalf of the debtor, and not yet distributed to the debtor, under any retirement or pension plan or system:
(A) Which is: (i) maintained for public officers or employees or both by the State of Georgia or a political subdivision of the State of Georgia or both; and (ii) financially supported in whole or in part by public funds of the State of Georgia or a political subdivision of the State of Georgia or both;
(B) Which is: (i) maintained by a nonprofit corporation which is qualified as an exempt organization under Code Section 48-7-25 for its officers or employees or both; and (ii) financially supported in whole or in part by funds of the nonprofit corporation;
(C) To the extent permitted by the bankruptcy laws of the United States, similar benefits from the private sector of such debtor shall be entitled to the same treatment as those specified in subparagraphs (A) and (B) of this paragraph,
provided that the exempt or nonexempt status of periodic payments from such a retirement or pension plan or system shall be as provided under subparagraph (E) of paragraph (2) of this subsection; or
(D) An individual retirement account within the meaning of Title 26 U.S.C. Section 408;
(3) The debtor’s interest, not to exceed the total of $5,000.00 in value, in all motor vehicles;
(4) The debtor’s interest, not to exceed $300.00 in value in any particular item, 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. The exemption of the debtor’s interest in the items contained in this paragraph shall not exceed $5,000.00 in total value;
(5) The debtor’s aggregate interest, not to exceed $500.00 in value, in jewelry held primarily for the personal, family, or household use of the debtor or a dependent of the debtor;
(6) The debtor’s aggregate interest, not to exceed $1,200.00 in value plus any unused amount of the exemption, not to exceed $10,000.00, provided under paragraph (1) of this subsection, in any property;
(7) The debtor’s aggregate interest, not to exceed $1,500.00 in value, in any implements, professional books, or tools of the trade of the debtor or the trade of a dependent of the debtor;
(8) Any unmatured life insurance contract owned by the debtor, other than a credit life insurance contract;
(9) The debtor’s aggregate interest, not to exceed $2,000.00 in value, less any amount of property of the estate transferred in the manner specified in Section 542(d) of U.S. Code Title 11, in any accrued dividend or interest under, or loan or cash value of, any unmatured life insurance contract owned by the debtor under which the insured is the debtor or an individual of whom the debtor is a dependent;
(10) Professionally prescribed health aids for the debtor or a dependent of the debtor; and
(11) The debtor’s right to receive, or property that is traceable to:
(A) An award under a crime victim’s reparation law;
(B) A payment on account of the wrongful death of an individual of whom the debtor was a dependent, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor;
(C) A payment under a life insurance contract that insured the life of an individual of whom the debtor was a dependent on the date of such individual’s death, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor;
(D) A payment, not to exceed $10,000.00, on account of personal bodily injury, not including pain and suffering or compensation for actual pecuniary loss, of the debtor or an individual of whom the debtor is a dependent; or
(E) A payment in compensation of loss of future earnings of the debtor or an individual of whom the debtor is or was a dependent, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor.
(b) Pursuant to 11 U.S.C. Section 522(b)(1), an individual debtor whose domicile is in Georgia is prohibited from applying or utilizing 11 U.S.C. Section 522(d) in connection with exempting property from his or her estate; and such individual debtor may exempt from property of his or her estate only such property as may be exempted from the estate pursuant to 11 U.S.C. Section 522(b)(2)(A) and (B). For the purposes of this subsection, an “individual debtor whose domicile is in Georgia” means an individual whose domicile has been located in Georgia for the 180 days immediately preceding the date of the filing of the bankruptcy petition or for a longer portion of such 180 day period than in any other place.
(c) The exemptions and protections contained in this article are extended to intestate insolvent estates in all cases where there is a living widow or child of the intestate.
(d) (1) At any time after closing of a case filed pursuant to an act of Congress relating to bankruptcy, the debtor, his or her receiver or trustee, or any interested party may file with a clerk of court where a judgment lien is recorded an affidavit of lien release and shall attach thereto a certified copy of the discharge of such bankrupt or debtor and a lien avoidance order, or a certified copy of the order of confirmation of a plan and the plan as confirmed, together with a copy of the portions of the schedules filed by the debtor in the bankruptcy case listing the judgment creditor and identifying property as exempt. In addition, the filer shall certify that no order has been entered in the bankruptcy limiting the discharge as to the judgment or retaining the judgment lien.
(2) Upon filing such affidavit, the lien of such judgment shall be deemed cancelled as to:
(A) Any property which was:
(i) Identified as exempt and for which a lien avoidance order was issued; or
(ii) Re-vested in the debtor without lien retention under a plan; and
(B) Any other property acquired by the debtor after the filing of the bankruptcy petition.
(3) The clerk of court shall file such affidavit in the deed records and index the recording information as to the affidavit of lien release on the judgment lien in the appropriate lien record.