When players file bankruptcy in Monopoly, it’s the end of the game. But when debtors file bankruptcy in real life, they get a fresh start. In Monopoly, there is only one kind of debt (real estate debt). So, there is only one kind of bankruptcy. In real life, there are different types of debt. So, there are different types of bankruptcies.

Chapter 7 debtors basically say “I cannot pay my debts, so take all my nonexempt assets to pay my debts.” As outlined below, most people do not have non-exempt assets. Chapter 13 debtors basically say “I can pay my debts, but I cannot pay them all at once, so I need a payment plan.” Bankruptcy’s protected repayment period lasts up to five years.

That’s the difference between Chapter 7 and Chapter 13 in a nutshell. There are many other subtleties, and only the best Athens bankruptcy lawyers know how to take full advantage of these subtleties. Our knowledge helps our clients put their bankruptcy filings behind them.

What Both Kinds of Bankruptcy Do

Chapter 13 and Chapter 7 are two different sections of the Bankruptcy Code. These Chapters focus on consumer debts. Some family farmers and other debtors are eligible for Chapter 12. Many large businesses file Chapter 11 reorganizations. Since Chapter 13 and Chapter 7 are cut from the same cloth, there are some similarities.

Automatic Stay

Section 362 of the Bankruptcy Code immediately stops 

adverse action. In most cases, debtors need not show good cause or anything else. The Automatic Stay is, well, automatic. Generally, this provision remains in effect until the judge closes the bankruptcy.

The stay works differently in different chapters. Many Chapter 13 debtors have home foreclosure issues. The Automatic Stay halts foreclosure, even if the auction sale is scheduled for later that day. Chapter 7 debtors often file bankruptcy to stop aggressive collection tactics, like wage garnishment, collection lawsuits, and harassing phone calls.

Asset Exemption

Bankruptcy also protects assets. Georgia has some of the most generous bankruptcy exemptions in the country. Some highlights include:

• Retirement Account: The Supreme Court recently affirmed that earned IRAs, 401(k)s, and other retirement nest eggs are completely exempt, regardless of their financial value. In other words, bankruptcy does not undo a lifetime of hard work and sacrifice.
• Homestead: Georgia law exempts $21,500 of home equity for single filers. The exemption doubles for married filers. Additionally, a Georgia bankruptcy lawyer can set up a tenancy of the entirety which protects even more home equity.
• Personal Property: The law exempts about $20,000 in personal property. This exemption is divided between personal injury recovery, household goods, tools of the trade, motor vehicles, and personal jewelry. Debtors use the item’s garage sale value as opposed to its fair market value. A used car’s fair market value might be several thousand dollars, but its as-is cash value might only be several dollars.
• Government Benefits: Like retirement accounts, Social Security benefits and other government benefits are exempt. Debtors should probably keep such funds in a separate account. But do not move any money until you talk to a Georgia bankruptcy lawyer. Such transfers could be considered fraudulent.

Georgia law also features a wildcard exemption. Debtors can apply a $1,200 exemption, plus $10,000 of the unused homestead exemption, to protect nonexempt property, like a lake cabin.

Chapter 7

The “liquidation” plan discharged most unsecured debts. Discharge means the judge removes the legal obligation to repay the debt. However, the debt itself remains, as do the collateral consequences, like a property or credit lien. A Georgia bankruptcy lawyer must address such collateral consequences in a separate proceeding.

Unsecured debts are obligations the debtor promised to repay. That promise is normally written. Examples include credit cards and medical bills. Some unsecured debts, like back taxes and student loans, are dischargeable in certain situations.

Most judges sign most discharge orders about six or nine months after Chapter 7 debtors file their voluntary petitions.

Chapter 13

The “wage earner” plan is designed for folks who struggle with secured debt delinquency. Secured debts include things like home mortgages and vehicle loans. Chapter 13 gives debtors control over these delinquent accounts.

In a Chapter 13, the trustee (person who oversees the bankruptcy for the judge) essentially places the debtor on an allowance for either three or five years. The debtor’s disposable income goes to a monthly debt consolidation payment. The trustee then distributes this money among secured creditors, priority unsecured creditors, and simple unsecured creditors according to a legal formula. At the end of the protected repayment period, any remaining unsecured debt is discharged.

Conclusion 

While filing bankruptcy can allow you to start afresh, it is important to understand the options you have at your disposal. Whether you file a Chapter 7 bankruptcy or a Chapter 13 bankruptcy, you need to know which one suits your situation better and can bring you relief. Hopefully, the above pointers have provided you with the basic understanding of both. Of course, there is more to it than meets the eye, which is why it is always recommended to work with experienced bankruptcy lawyers, who will guide you through the maze in the most effective way possible. 

Connect with Experienced Bankruptcy Attorneys in Athens, GA

In a nutshell, people with unsecured debt should probably file a Chapter 7 bankruptcy and people with secured debt should probably file a Chapter 13 bankruptcy. For a free consultation with an experienced bankruptcy lawyer in Georgia, contact Morgan & Morgan, Attorneys at Law P.C. at (706) 843-2905. We routinely handle matters in Clarke County and nearby jurisdictions.