When you are considering filing for bankruptcy, many things may run through your mind. Is filing for bankruptcy really the best option for me? How does bankruptcy work? What type of bankruptcy should I file? Am I even eligible to file for bankruptcy? These are all valid questions that you should ask yourself before you begin the bankruptcy process. 

Filing for bankruptcy should be a last resort and should never be a decision that is hastily made. Many people file without being properly informed on the process and the consequences. While considering bankruptcy, you should examine these six factors as well as consult with a bankruptcy attorney to weigh your options.

What To Consider Before Filing for Bankruptcy

1. Other Options. Many times there are alternatives that can be more effective and beneficial as a financial remedy that you may have not thought of yet. Take a look at the types of debts that you have and evaluate all of your options. Oftentimes, creditors are willing to work with debtors to settle debts in an amicable manner. If this is an option for you, perhaps that would be better than filing for bankruptcy.
2. Losing your property. The most common form of bankruptcy is Chapter 7. During Chapter 7 bankruptcy, a trustee is appointed by the court to handle your bankruptcy paperwork and oversee the sale of your property. The proceeds from the sale of your property is used to pay off your creditors. You have to be sure that you are financially and emotionally willing to part ways with your property.
3. Lawsuits. If a creditor has a lawsuit against your or has already obtained a judgment, bankruptcy can help. When you file your bankruptcy petition, an automatic stay goes into place immediately. This prevents creditors from engaging in collection activities during the bankruptcy process.
4. Impact on Credit History. Bankruptcy has a tremendous effect on your credit score. If your credit is already poor, you won’t see too much of a change, but if your credit was in good standing, filing for bankruptcy can cause a dramatic decrease in your score. Moreover, bankruptcy can stay on your credit report for seven to ten years. Make sure you are willing to deal with this before filing.
5. Eligibility. You cannot file for bankruptcy simply because you want to. You have to be eligible to file for bankruptcy by meeting the requirements of the means test, which measures your disposable income. For Chapter 7 bankruptcy, your disposable income must be lower than the average disposable income in your given area. For Chapter 13 bankruptcy, your debts must not exceed a certain dollar amount and you much have enough disposable income to pay your debts via a payment plan over the next three to five years.
6. Type of bankruptcy. You need to decide which bankruptcy filing is in your best interest. Both Chapter 7 and Chapter 13 bankruptcy have their advantages and disadvantages. Take a look at the types of debts you currently have, your monthly income and expenses, the type of property you own and what you hope to gain from filing for bankruptcy.
   

   Determining Bankruptcy Eligibility in Georgia

   As previously mentioned, deciding you want to file for debt relief through bankruptcy isn’t enough. Specific criteria must be met before you are eligible to file. Those criteria vary depending on which type of bankruptcy you anticipate filing as well.

   For a Chapter 13 bankruptcy petition, individuals must meet specific debt requirements before filing. Your unsecured debt must be less than $394,725, and your secured debt must be less than $1,184,200. Those numbers are for anyone; it doesn’t matter where you work or live within the state.

   Unsecured debts are those that aren’t backed by collateral, so your personal loans or credit card debts fall into this category. Secured debts are those that are attached to some form of collateral. Your mortgage is secured by your house, for example.

   The amount of debt allowable for a Chapter 13 bankruptcy filing is periodically adjusted. The consumer price index routinely changes, and when it does, so does the debt ceiling, allowing for Chapter 13 bankruptcy. These changes make working with a qualified bankruptcy attorney essential, so you don’t waste your or the court’s time with filings that aren’t eligible.

   In addition to meeting the appropriate debt requirements, people who file for Chapter 13 bankruptcy must participate in a credit counselling course sometime during the six months before filing. An approved credit counselling agency must oversee the course, but you can choose whether to attend group or individual sessions. There are occasions when the trustee or administrator can waive this requirement. Any debt management plans created while taking the credit counselling course must be shared with the bankruptcy court when you file for bankruptcy.

   With Chapter 7 bankruptcy filings, you must meet income requirements to qualify. Your income must be below a specified amount to qualify, and you must pass the “means test” to prove you meet this eligibility factor. The means test is based on US Census data determinations of average household income. For example, in 2020, the US Census determined the average household income for a household with three people was $75,460.

   If you want to file for Chapter 7 bankruptcy, your income must be below the average for a household the same size as yours. The income limits do periodically change. In 2022, the average income for a three-person household in Georgia was $79,980. That’s a $4,000 increase in two years.

   If your average household income is too high, you might still qualify to file for Chapter 7 bankruptcy. There’s a second means test that calculates your disposable income. To use this test, you must first know the total of your monthly expenses. You subtract the sum of expenses from your total monthly income, giving you the total amount of disposable income you have; if your disposable income is too low, you might qualify to file for Chapter 7 bankruptcy.

   It’s important to note that when you complete the means test forms, you must use all the income for your household, even if your spouse isn’t filing bankruptcy with you. You may be given permission to use only your payment if you’re legally separated. The forms require that you include all income from every source for six months before filing for Chapter 7. Doing this gives you a more accurate average monthly payment.

   Another thing to note about income limits is they change approximately every six months in Georgia. That’s another reason to consult with a qualified bankruptcy attorney before you begin your paperwork to file for bankruptcy. They will have access to the current income requirements before the general public does.

   Choosing the Appropriate Bankruptcy Filing for You

   Once you’ve determined your eligibility for bankruptcy protection in Georgia, you need to decide which Chapter to file. Typically, individuals choose between Chapter 13 and Chapter 7 bankruptcy protection. You must understand the kind of bankruptcy you’re filing before you begin the process so there aren’t any surprises for you down the road.

   While Chapter 7 is typically the faster and less expensive of the two forms of bankruptcy, it may not be the right choice for you. This form of bankruptcy is best for those who don’t have many assets and value essentials rather than luxuries. There is no payment plan to help you catch up on a mortgage or a car loan, so you could even lose those if you are behind on payments when you file your bankruptcy petition.

   Chapter 13, however, requires filers to pay creditors back over three to five years. With Chapter 13, you can keep your property and possibly save your home and car from foreclosure or repossession. The downside to Chapter 13 bankruptcy is that many people can’t afford to make the monthly payments once they’ve filed. The inability to make bankruptcy payments can land you worse than when you filed in the first place.

   Remember, while bankruptcy does eradicate many debts, it won’t erase them all. Some debts will be waiting for you when your bankruptcy is discharged. For example, student loans aren’t typically discharged with bankruptcy, but you can file a separate lawsuit to clean that slate. Child and spousal support are also non-dischargeable debts.

   If you plan to file bankruptcy, you should ensure that you come out of the bankruptcy in better financial circumstances than when you filed. Take the opportunity to change your spending habits, and make sure that the bankruptcy covers enough of the bills that it’s worth the hassle, credit hit, and monetary investment to file.

Whether or not you file for bankruptcy, you need to sit down with an experienced bankruptcy attorney to talk about your options when you are in financial straits. Bankruptcy is a complicated process that has multiple implications for the financial future of you and your family. Here at Morgan & Morgan, we have more than 30 years of experience helping people with bankruptcy and debt relief. Visit our website today or call (706) 548-7070 for a free consultation.

Related Content: Chapter 7 vs Chapter 13 Bankruptcy

Original article revised on Jan 13, 2023

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Morgan Lawyers