Many Georgia residents file bankruptcy under Chapter 13 because it allows them to restructure their debts, pay their obligations, and keep their property. The repayment plan structured in Chapter 13 bankruptcy lasts for 3-5 years. During this period, circumstances may change causing people to wonder if they can convert a Chapter 7 bankruptcy.

The reasons you might want to convert from Chapter 13 to Chapter 7 can vary. Sometimes financial circumstances change because of a lost job, or illness, or injury. You may choose to convert their bankruptcy because you no longer wish to hang on to property that Chapter 13 bankruptcy is designed to save.

How is Chapter 13 Bankruptcy Different from Chapter 7

Broadly speaking, an individual or couple would choose to file Chapter 13 bankruptcy if they have a steady income. Under this kind of bankruptcy, debt is restructured, and payments are made under a plan approved by the court. This type of filing can be desirable because it’s designed to allow the debtor to protect most or all their personal property.

Conversely, under Chapter 7 bankruptcy, a filer is required to liquidate most assets except property and assets exempted under Georgia Bankruptcy Exemption law. The property is sold by a bankruptcy trustee and the proceeds are used to pay off the filer’s debt. Chapter 7 can be a faster path to eliminating debt but can leave the debtors with little personal property.

Chapter 7 Eligibility Qualifications

To determine your eligibility to file for Chapter 7 bankruptcy, a means test is used. Under Georgia law, you must make less than the median income for a similarly sized household in your state. If the median Georgia income for a household of three is $45,000 per year, you would need to make less than that to qualify.

As a Georgia resident, you can still qualify to file under Chapter 7 if you make more than the median income. To do so, you must demonstrate that you have little to no disposable income each month after all your bills are paid.

If you have filed for Chapter 7 bankruptcy within the last eight years, you will not qualify.

Converting from Chapter 13 to Chapter 7 is Allowed in Georgia

To convert from Chapter 13 to Chapter 7 bankruptcy in Georgia, you must file a “Notice to Convert” with the bankruptcy court. Most times, conversions are not challenged as long as you can demonstrate a sufficiently low income.

Before beginning this conversion, you should consider what property you have that will be protected from liquidation under Georgia Bankruptcy Exemption laws.

Overview of Georgia Bankruptcy Exemption Laws

Under Georgia law, certain assets and personal property can be exempted or protected from being liquidated in Chapter 7 bankruptcy.

Homestead Exemption

Under Georgia law, you can exempt up to $21,500.00 for any equity you may have in your home. If you have no equity in your home, it’s unlikely the trustee would try to liquidate it. Additionally, if you have less than $21,500.00 equity in your home, you can apply the exemption to protect your home from being sold.

You must also be sure that your mortgage payment is current even in a Chapter 7 bankruptcy to avoid foreclosure. Most mortgage creditors will not foreclose on a home if your monthly payments are kept current.

Vehicle Exemption

If you convert from a Chapter 13 to a Chapter 7 bankruptcy, you may still be able to keep your car. If you own your car outright, you will need to have enough exemptions to protect the car from sale by the trustee.

The state of Georgia allows a $3,500 exemption per debtor. If your car is worth more than that, there is still the possibility that you can retain your car. If you have a car loan, the payments must be kept current during the bankruptcy process.

Other Exemptions

The state of Georgia allows for many other exemptions that may be of benefit to someone who finds themselves needing to file for bankruptcy under Chapter 7. These include exemptions related to:

• Personal Property – This exemption covers home furnishings, clothing, appliances, books, crops, and animals. The total amount that can be exempted under personal property is $5,000. No single item can be valued at greater than $300.
• Jewelry – up to $500 in jewelry may be protected from liquidation
• Wages – you are allowed to keep your disposable earnings each week or 40 times whichever is greater of the state or federal hourly minimum wage
• Tools of the Trade – A debtor is allowed to keep up to $1,500 worth of tools, books, and other necessary items used in the performance of their work.
• Retirement Accounts – Money kept in certain pension plans or retirement accounts such as a 401(K) can be exempted from bankruptcy liquidation
• Public Benefits – Veteran’s or age-related benefits, assistant for the blind/deaf can be exempted
• Other Support – Alimony and Child Support are not subject to bankruptcy proceedings
• Wild Card – Georgia law allows up to $1,200 in personal property to be exempted under a wild card exemption. In addition, if you do not use all the allowable homestead exemption, up to $10,000 can be used as a wild card exemption
• Other Exemptions as Allowed – Under Georgia law, other exemptions may apply to your bankruptcy situation such as money from a health or medical savings account, professionally prescribed health aids, wrongful death benefits that are necessary for your support, and more. A Georgia bankruptcy attorney can help you determine what exemptions may work to your benefit if you choose to convert from Chapter 13 to Chapter 7 bankruptcy.

Chapter 7 Trustee Duties

As previously mentioned, when you convert from a Chapter 13 to a Chapter 7 bankruptcy, a trustee will be assigned to your case. His or her role is to ensure that all the creditors are treated fairly and that they each receive as much money as possible to pay back the debt you owe.

The trustee will review your assets and liabilities to determine if any assets can be sold to repay creditors. If the trustee determines you do have assets that can be sold, he or she will sell those assets and pay back the creditors on a pro-rata basis with the proceeds.

Liquidation of this sort is common in a business Chapter 7 bankruptcy but does not always happen in a typical personal Chapter 7 case. In addition, any liquidation of assets is subject to the exemptions outlined previously.

The 341 Hearing or Meeting of Creditors in Georgia

Besides having a trustee assigned to review your assets, when you convert from a Chapter 13 to Chapter 7 bankruptcy, there will be a hearing known as the 341 Meeting of Creditors. This meeting is an opportunity for the trustee and the creditors to meet with you and ask any questions they may have about your situation.

The trustee will likely ask questions related to your assets to begin his or her determination of whether you have assets that can be sold to repay creditors. In addition, the trustee will examine whether there have been any fraudulent transfers of property prior to the filing.

In addition, the trustee may want to see copies of any financial documents from your original Chapter 13 filing. He or she may also want copies of your bank statements, pay stubs, and tax returns.

Creditors are allowed to attend this hearing to ask you questions as well. However, even though your creditors are made aware of the hearing and are invited to attend, creditors rarely appear at these meetings. These meetings normally take 5 to 10 minutes.

How Long Might this Process Take?

The Chapter 7 bankruptcy process is much faster than the Chapter 13 process. In total, the Chapter 7 process takes about four months. Generally, most people who file for Chapter 7 bankruptcy only are required to attend the 341 meeting. After that meeting, you will receive your discharge paper in the mail. This normally happens within 90 days of the creditors.

Once the trustee has completed their work on your bankruptcy case, the court will close the case and the process will be complete.

What Information Can You Provide to Your Attorney in Georgia?

If you believe that you may be in a situation where conversion from Chapter 13 to Chapter 7 bankruptcy could benefit you, you should consult an attorney who can help you determine the best course of action. To give your lawyer the most helpful information, be sure to provide them with the necessary documentation. This can include:

• An updated budget showing what has changed since filing your Chapter 13 case. Consider printing out the payment scheduled from your Chapter 13 petition and provide updated figures
• Provide pay stubs for yourself and anyone in your household that contributes to the monthly budget
• Bring your most recent completed tax return

Gathering these materials and bringing them to your attorney consultation will give your attorney the information they need to help you make an informed decision about how to proceed.

Use an Experienced Bankruptcy Attorney in Georgia

If you are considering converting your Chapter 13 bankruptcy case to Chapter 7, it would be to your benefit to speak to an attorney knowledgeable in such matters. The bankruptcy attorneys at Morgan & Morgan can review your case to help you determine if you’re eligible to file under Chapter 7 and if that would be the best step for you. Contact us today to schedule your no-obligation consultation to find out more about your options and how our experienced team of attorneys can be of assistance to you.