The Advantages of Filing for Bankruptcy in Athens, GA

The cold reality is that good people suffer from burdensome debt. They may have high medical bills, lost their primary source of income, or have been underpaid, making it impossible to avoid predatory lenders.

 

Despite this unfortunate reality, the law provides solutions to debt problems. For example, overwhelmed debtors can discharge all eligible debts in Chapter 7. Alternatively, they can keep valuable property despite filing bankruptcy by using Chapter 13.

Both options provide substantial advantages. However, your best choice depends on your financial situation and goals.

The Advantages of Filing a Chapter 7 Bankruptcy in Athens, Georgia

Chapter 7 bankruptcies are liquidation bankruptcies. As such, they require the debtor to sell all non-exempt property and use the proceeds to repay creditors. What debt remains after the sale of property is discharged, allowing the debtor a fresh start in terms of dischargeable debt.

 

While this sounds straightforward in theory, in reality, bankruptcy law permits debtors to keep certain types of property, and creditors rarely receive any compensation through the bankruptcy court. Bankruptcy lawyers are adept at helping their clients shield whatever remaining property they possess as exempt assets. 

 

In addition, if their clients have significant non-exempt assets, they steer them towards Chapter 13, which allows them to keep high-value property, such as their home.

 

Deciding whether to file bankruptcy is a matter of weighing the advantages and disadvantages. When the benefits of eliminating the debt outweigh the drawbacks, such as lack of access to credit for a period, then filing for bankruptcy makes sense. In the sections below, we explain the advantages of Chapter 7.

 

A Clean Slate–To Some Degree

The number one benefit of filing a Chapter 7 is that it wipes away unmanageable debt. When a household becomes insolvent, it can no longer afford to pay all of its bills. As a result, it must pay only the essential expenses it can manage. The creditors whose bills remain unpaid report the delinquencies to the credit bureaus and take actions to collect, such as filing a lawsuit and applying to the court for wage garnishment. For many people, this creates a financially untenable situation.

 

Chapter 7 bankruptcy wipes away dischargeable debts, providing the debtor with a clean slate. Freed from unmanageable obligations, the household can now afford to sustain itself monetarily. The slate has been wiped clean.

 

However, Chapter 7 does not wipe out all debts. Some obligations survive Chapter 7, so most petitioners receive a clean slate to a degree. They must still make good on their non-dischargeable debts. Non-dischargeable debts include the following:

• Alimony
• Child support
• Most taxes
• Student loans
• Court fines and penalties
• Many debts related to personal injury or wrongful death lawsuits
• Debts incurred through fraud

Alimony

The law prohibits the discharge of domestic support obligations in bankruptcy. This protects the alimony payee from being left destitute. However, an alimony obligor struggling financially may benefit from the elimination of other debts that makes the alimony payments more affordable.

Child Support

The law prohibits the discharge of child support in bankruptcy to protect children and their primary caregivers from destitution. Those who owe back child support may benefit from filing bankruptcy when eliminating other unmanageable debts provides the means to catch up on child support payments.

Most Tax Debts

The bromide, “nothing is certain but death and taxes,” is apt regarding bankruptcy law. Governments ensure that they receive their money in the end. The ban on the discharge of taxes applies to federal, state, and local taxes. However, some tax debts over three years old are eligible for discharge.

 

It’s important to note that the debtor must have filed a tax return for old tax debts to be eliminated.  

Student Loans

Chapter 7 also cannot touch student loans, though discharging other debts may make paying them more manageable. But overwhelmed student loan debtors have several options for reducing or eliminating student loan debts without filing bankruptcy.

 

For example, payments can be reduced or eliminated through an income-based repayment plan. These plans last up to twenty-five years, at which time any remaining debts are eliminated. Also, the government permits student loan debt forgiveness in cases of extreme hardship, such as total disability.  

Debts Incurred Through Fraud

Fraudsters may not eliminate debts through bankruptcy. For example, a Ponzi scheme runner cannot discharge debts to his victims through bankruptcy.

Court Fines and Penalties

Most court-imposed fines and penalties cannot be discharged in a Chapter 7 bankruptcy.

Debts Incurred After Filing

Once you file for bankruptcy, any new debt must be repaid.

Debts from a Personal Injury or Wrongful Death Lawsuit

Most debts incurred from a personal injury or wrongful death lawsuit are non-dischargeable.

Instant Protection From All Creditors

Upon filing a Chapter 7 bankruptcy, the automatic stay goes into effect. All creditors are prohibited from continuing with collection activities. They must cease collection calls and send no collection letters. Also, the automatic stay prohibits them from filing lawsuits, garnishing wages, and seizing property.

 

For debtors in immediate danger of losing their home or vehicle, the automatic stay is a godsend. Foreclosure and eviction processes are halted after the stay is issued, allowing the petitioner to remain in the home. Also, any attempts to repossess an automobile must cease.

 

However, the automatic does not apply to all debts. For instance, child support collection activities have an exemption from the automatic stay.

You Can Keep Some Secured Property

As a liquidation bankruptcy, Chapter 7 requires the debtor to sell property and use the proceeds to repay creditors. However, the law allows debtors to keep certain property types up to a specific value.

 

The U.S. Bankruptcy Code establishes a list of exemptions, but it is up to each state to set its own limit. Georgia law allows for generous exemptions for personal residences, vehicles, and personal property. Contrary to popular belief, you do not lose everything in a Chapter 7 bankruptcy.

 

Here are some of Georgia’s exemption limits:  

Homestead

$21,500, or $43,000 if the title to the property is only held by one spouse; $10,000 of unused homestead exemption can be applied to any other property

Personal property

$10,000 in personal injury recoveries; $5,000 for household goods, clothing, tools, furnishings, animals, and crops; $500 for jewelry

Vehicle

$5,000 of equity

Wages

75% of earned but unpaid weekly disposable earnings or 40 times the state or federal hourly minimum wage, whichever is higher

Pension and Retirement

IRAs and pensions to the extent reasonably necessary for the support of the debtor and any dependent of the debtor

 

Georgia law fully exempts the following:

• Social Security benefits
• Unemployment compensation
• Veterans benefits
• Disability, illness, and unemployment benefits

Your Credit Score May Improve Post Discharge

Upon filing a Chapter 7 bankruptcy, your credit score will plummet. This is because while the bankruptcy case remains open, you can place additional debts into the bankruptcy, making you a bad credit risk. But once you receive the discharge, your credit score will likely increase quickly, often rising above your pre-bankruptcy score.

 

The increase in your score results from the elimination of debts. Because you now have fewer obligations, creditors see you as a better credit risk than before you filed.

Advantages of Filing a Chapter 13 Bankruptcy

While Chapter 7 provides many advantages, it is unsuitable for some people. Firstly, many debtors do not qualify for Chapter 7. For instance, their income may be too high, or they may have filed Chapter 7 within the previous seven years. However, these debtors can still seek relief under Chapter 13.

 

Chapter 13 bankruptcies establish a repayment plan rather than eliminating debts. Because the debts are restructured rather than eliminated, the debtor keeps secured property that is worth more than the exemption limit, making a Chapter 13 ideal for those with valuable assets, such as home equity, vehicle equity, cash savings, and securities held in a non-tax advantaged account.

 

The following are key advantages of a Chapter 13 bankruptcy:

Affordable Payment Plan

For a court to approve a Chapter 13 repayment plan, it must fit within the debtor’s budget. As a result, the monthly amount the debtor pays is affordable. Also, if the debtor’s income changes, such as after a job loss, he can request the court to restructure the plan.

Property Protection

Chapter 13 bankruptcies are often called home-saver bankruptcies. They can also provide protection for other types of property at risk of being liquidated in a Chapter 7 bankruptcy case. This is because the debtor’s assets are not typically sold off in a Chapter 13 case, as long as the debtor makes payments according to the repayment plan.

Creditor Interaction 

Chapter 13 bankruptcy can also facilitate better communication and interaction with creditors. The debtor’s repayment plan is typically reviewed and approved by the court, which can help to minimize disputes and confusion.

Discharge of Unsecured Debt

At the end of the repayment period, any remaining unsecured debt is typically discharged, meaning the debtor is no longer responsible for paying it.

 

Credit Impact

While filing for bankruptcy will have a negative impact on your credit score, Chapter 13 bankruptcy may be viewed more favorably by lenders than Chapter 7 bankruptcy, as it shows that you are making an effort to repay your debts.

 

There are many advantages to filing for bankruptcy. Once you file, the court issues an automatic stay. This stay prevents creditors from seizing property, garnishing wages, and taking other collection activity. 

 

If you file Chapter 7, you can eliminate all dischargeable debts, giving yourself a fresh start. With Chapter 13, you can restructure your debts into a manageable payment program, allowing you to retain vital assets, such as your home.

 

Morgan & Morgan specializes in helping overwhelmed families solve their debt problems. If you are considering bankruptcy, contact Morgan & Morgan for a consultation.

 

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