Frequently, bankruptcy is the only protection that debtors have from aggressive creditors. The Supreme Court has recently diluted some of the key consumer protections in the Fair Debt Collections Practices Act. 

So, if you are unable to comfortably pay your bills or you are dealing with an emergency situation, you could tread water for a few months and watch your financial situation deteriorate day by day. Or, you could file Chapter 7 bankruptcy and take control of your finances.

Since every situation is different, there is no singular answer to a question like “when should I file Chapter 7 bankruptcy?” The response largely depends on the type of financial problems you are experiencing, as outlined below.

But a blog post can only explain so much. The best way to get a direct answer to a question like this is to speak with an Athens bankruptcy lawyer. An attorney can review your financial situation, suggest some legal options, and clearly explain the pros and cons of each one.

Emergency Bankruptcy in Athens, GA

As mentioned, there are fewer consumer protections available outside bankruptcy. As a result, many creditors are incredibly aggressive. 

Vehicle repossession is a good example. In a bygone era, many lenders gave owners a two or three-month grace period for missed payments, especially if the owner had a good credit history. 

Moneylenders had such policies not to benefit owners, but to benefit themselves. It is very expensive to repossess, store, and sell a motor vehicle at auction. Additionally, the auction sales price is usually only a fraction of the remaining loan balance.

But now, even this courtesy is largely gone. Legally, lenders can repossess autos after just one missed payment. So, if you are more than one payment behind and lack the means to immediately bring the loan current, you should at least consider filing Chapter 7.

That filing triggers the Automatic Stay. Section 362 of the Bankruptcy Code prohibits vehicle repossession and all other forms of creditor adverse action. In fact, the Automatic Stay prohibits most communications between debtors and creditors.

A quick note here. Because the Automatic Stay is so broad and the penalties for violating it are so harsh, many lenders err on the side of caution. They stop sending monthly bills and suspend ACH debits. Nevertheless, you are still responsible for these payments. The Lender simply cannot take adverse action regarding these payments.

Typically, the Automatic Stay remains in effect until the judge closes the Chapter 7 bankruptcy. That order usually comes about six or nine months after the filing. So, if you are behind on car payments, you have plenty of time to make small catch-up payments each month.

What Is an Incremental Bankruptcy?

Other Chapter 7 bankruptcies are incremental bankruptcies. The cumulative weight of smaller debts is too much to carry.

Most financial professionals say that a DTI (debt-to-income) ratio should not exceed 35 percent. To determine your DTI, compare your monthly bills with your total income. Assume each month Devon pays $1,300 rent and utilities, $800 child support, and $400 vehicle payment and auto insurance, for a total of $2,500. Therefore, Devon’s net income after taxes should be at least $7,500 per month.

35 percent is only a rule of thumb. For example, the type of debt is a factor. Vehicle payment interest often does not exceed 10 percent. Credit card interest rates might be twice that high. So, if you have a significant amount of credit card debt, and most people do, your DTI should be a lot better than 50 percent.

Finally, on this point, 35 percent is the keep-your-head-above-water point. Working hard every day just to pay bills is no way to live. Most people want to have some money left over for saving and/or splurging. So, if Devon wants a reasonably nice quality of life, he should net significantly more than $7,500 a month.

Credit card debt and other unsecured debt is dischargeable in Chapter 7. With no more credit card bills, you are able to spend that money on something you want to spend it on, as opposed to something you have to spend it on.

Additional Benefits of Chapter 7 Bankruptcy in Georgia

Again, you can’t read a blog entry and accurately determine whether filing for Chapter 7 bankruptcy is the right decision given your circumstances. You need to review the details of your case with an attorney to learn more about your options.

That said, there are some general benefits of filing for Chapter 7 bankruptcy that you should know about. Along with the benefits already covered here, potential reasons you may consider filing for Chapter 7 bankruptcy include the following:

• When you file for Chapter 7 bankruptcy, creditors usually can’t garnish your wages. After filing for bankruptcy, it’s important to focus on responsible spending, only using your wages for life’s necessities until your financial situation has dramatically improved. That said, you at least want the peace of mind that comes from knowing creditors will not have the option to target your income as a means of collecting on unpaid debts. This can be particularly important if you have children or others who rely on your income for their daily needs.
• If you file for Chapter 7 bankruptcy, there are numerous ways you can conceal this information from most of the people in your life. Technically, they may be able to access records pertaining to your bankruptcy, but the process of doing so is cumbersome. If you don’t want someone to know all the details of your financial situation, there’s a good chance you’ll be able to keep the information secret from them. However, if you did not file for Chapter 7 bankruptcy, creditors could theoretically seize your assets. A person might therefore be more likely to notice your financial situation is dire if you are losing possessions with no clear explanation as to why.
• It can be difficult to focus on improving your financial situation when you are being constantly reminded of your debts by creditors. Ironically, when creditors and lenders are in frequent contact with debtors, the stress of the circumstances can prevent a debtor from making the improvements they need to pay off their debts. On the other hand, when someone files for Chapter 7 bankruptcy, they may feel relieved, allowing themselves to start working on making changes to avoid getting into a similarly difficult financial situation in the future.

Those are just a few points to keep in mind if you’re thinking about filing for Chapter 7 bankruptcy. Once more, you should discuss this topic with a legal expert who can more thoroughly explain whether Chapter 7 bankruptcy is your best option.

The Process of Filing for Chapter 7 Bankruptcy in Athens, GA

There are many reasons to enlist the help of a bankruptcy attorney when you’re planning to file for Chapter 7. For example, an attorney can walk you through the process, helping you avoid any missteps. Their assistance will also generally render the process much less overwhelming than it may otherwise be.

Just as a single blog entry can’t tell you if filing for Chapter 7 bankruptcy is a good idea, a blog entry also can’t necessarily explain what every element of the process may involve when you do file for bankruptcy. In general, though, it usually involves these key steps:

• Filling out forms and gathering evidence so that you can provide the court with all necessary information about your finances when filing a petition. A lawyer can help you fill out the forms properly, optimizing the chances that your petition will be accepted.
• Taking a credit counseling course. This is often a requirement for those filing for bankruptcy. You need to demonstrate to the court that you are taking steps to improve your financial habits.
• Once you file your petition, the Automatic Stay will take effect. Again, this prevents the vast majority of creditors and lenders from contacting you. If a creditor appears to be violating the Automatic Stay, you can alert your attorney, who may handle the situation on your behalf.
• The court will assign a bankruptcy trustee to your case and schedule a meeting of creditors. Before this meeting, the court may request that you supply additional documentation indicating statements you’ve made about your finances and debts are accurate.
• After verifying your identity at the meeting of creditors, the court will require you to complete a debtor’s education course, and will proceed to discharge your debts and eventually close the case.

A process involving all these steps may appear to be intimidating, but it can be much less stressful than you think. The experience is much more likely to be a relatively painless and easy one if you coordinate with a lawyer. They’ll answer all your questions, address all your concerns, and unburden you by handling a range of key tasks that you might otherwise be forced to handle on your own.

Athens Bankruptcy Lawyers and Priority Unsecured Debts

Not all unsecured debts are dischargeable in a Chapter 7. Past-due income taxes are a good example. Although this debt is unsecured, it is only dischargeable if the debt is at least three years old, the return has been on file at least two years, and the debt has not been assessed in the last 240 days.

The IRS is extremely scrupulous about these dates. Athens bankruptcy lawyers have encountered problems if the tax debt was two or three days’ short of three years old. “Assessment” is an accounting term. Generally, if you have not received a letter from the IRS in the past eight months, you probably clear the assessment hurdle.

If your back tax debt is not dischargeable in a Chapter 7, other options are available under the recently-unveiled Fresh Start Initiative. Chapter 13 repayment bankruptcy might be an alternative as well.

Consult With An Athens Bankruptcy Lawyer in Georgia

Financial problems only get worse unless you do something about them. For a free consultation with an experienced Athens bankruptcy lawyer, contact Morgan & Morgan, Attorneys at Law, P.C. We routinely handle matters in Clarke County and nearby jurisdictions.

Originally published on September , 2020 and updated October 16, 2021.

Christopher Ross Morgan

Christopher Ross Morgan

Christopher Ross Morgan focuses on bankruptcy cases, specifically Chapter 7 and Chapter 13 cases. Christopher also takes on Disability and Workers’ Compensation cases. As one of the most accomplished Chapter 7 and Chapter 13 attorneys in Athens, Georgia, he has fought cases through jury trials and argued cases in front of the U.S. District Court, Northern and Middle District of Georgia.