When unsecured debts are the disease, Chapter 7 is usually the cure. The average American household with at least one account has over $9,000 in credit card debt. That’s an awful lot of money for families who are barely making ends meet. In fact, most financial planners say that if your credit card debt exceeds 10 percent of your annual income, it will be difficult or impossible to pay it off.

When and Why People Turn to Credit Cards in Georgia

A few people run up high credit card bills because they have to buy the latest iPhone and PlayStation. More frequently, however, people turn to credit cards if their incomes dry up. A two-or three month job layoff or business downturn could easily mean thousands of dollars in credit card charges. Additionally, most people have medical bills and other unsecured debts on top of their credit card obligations.

People struggling with secured debt usually file Chapter 13. Secured creditors are very aggressive. In most states, including Georgia, banks can legally foreclose on a loan after one missed payment. A missed payment usually also gets people stuck in a downward spiral. If you miss the January payment, the bank applies the February payment to the January bill. Furthermore, after a missed payment, most mortgage banks stop accepting partial payments. Instead, they send an acceleration notice.

Many banks force distressed borrowers to ride the mortgage modification Ferris Wheel. The bank promises relief and, after stringing the borrower along for a few months, uses an obscure technicality to cancel the deal. After two or three rides on this up-and-down ferris wheel, the borrower owes more than s/he can possibly pay. Then, foreclosure proceedings resume.

This brief overview cannot substitute for a personal meeting with an experienced Georgia bankruptcy lawyer. Only a seasoned attorney can assess your financial and legal situation, then give you solid legal advice. Cut-rate bankruptcy petition preparers can only fill out forms. And, pro se debtors who do not have a Georgia bankruptcy lawyer are completely on their own.

Bankruptcy Basics in Athens, GA

Before we talk about the differences between Chapter 7 and Chapter 13, let’s talk about some similarities between these two forms of bankruptcy. Such similarities mainly involve the “Big Three”.

The moment debtors file their voluntary petitions, the Automatic Stay prohibits most kinds of adverse credit actions, at least in most cases. Such actions include:

• Foreclosure,
• Eviction,
• Collection lawsuits,
• Repossession, and
• Wage garnishment.

When the Automatic Stay May Have a Limiting Effect

If the debtor has filed bankruptcy within the previous six months, even if that filing was under another entity’s name, the Automatic Stay might have only a limited effect. Furthermore, Section 362 of the Bankruptcy Code does not apply to a specific debt if there is clear evidence of fraud or other wrongdoing.

Usually, the Automatic Stay remains in full effect until the judge closes the bankruptcy. In a Chapter 13, that could be up to five years from the filing date.

What Is Exempt Property in Georgia?

The Automatic Stay prevents creditors from liquidating any property in the debtor’s possession. Bankruptcy’s property exemptions prevent the trustee (person who oversees the bankruptcy for the judge) from touching certain items. Exempt property usually includes:

• House,
• Motor vehicle,
• Retirement account,
• Government benefits,
• Current wages, and
• Personal property.

A skilled Georgia bankruptcy lawyer can use some informal exemptions to expand this list. The best interests of creditors rule is a good example.

What Is the Best Interests of Creditors Rule

Assume Vivien has a fifth wheel which the written exemptions do not protect. It’s rather old and beat up. The trustee estimates that it’s worth about $500, which puts its quick sale value at $300. The trustee also estimates that sales costs, such as auction fees and storage fees, would also be about $300.

In this situation, the trustee couldn’t legally seize Vivien’s boat. The seizure would punish her, because she loses her fifth wheel. But this action doesn’t financially benefit her creditors. They would receive little or nothing.

Incidentally, something like a camper or fifth wheel could either be a motor vehicle or a primary residence, depending on its actual use.

What Are Bankruptcy Discharges and Unsecured Debt in Athens, GA?

Bankruptcy discharges (eliminates) unsecured debts. The aforementioned credit cards and medical bills are the two largest categories. Other unsecured obligations include SBA loans, revolving charge accounts, and payday loans.

Some unsecured debts are only dischargeable in limited situations. Some priority unsecured debts include back taxes and student loans. Other kinds of unsecured debts, mostly alimony and child support, are usually non-dischargeable.

Technically, discharge eliminates the legal obligation to repay a debt. The debt itself remains. Assume Clark owes tuition to State U and the institution withholds his transcript. If CLark files bankruptcy, he probably doesn’t have to pay the past-due tuition. However, State U may continue to withhold his transcript. Clark’s Georgia bankruptcy lawyer must address this issue separately.

What Is Chapter 13 Bankruptcy in Athens, Georgia?

Chapter 13 allows distressed Georgia debtors to take control of their own financial situations.

Qualifying for Chapter 13 in GA

Just like there are formal and informal property exemptions, there are formal and informal qualifications for bankruptcy.

The formal qualifications are rather straightforward. These debtors must have less than $1.4 million in secured debt and less than $400,000 in unsecured debt. So, unless you live in Wayne Manor, use a credit card for all your Batcave swag, and drive the Batmobile to work, you’re probably under these debt limits.

Why Do I Have to Take a Pre-Filing Credit Counselling Course?

Additionally, all bankruptcy debtors must take a pre-filing credit counselling course, which most have already done, and a post-filing monthly budgeting course. These brief, inexpensive classes are usually available online.

Informal Chapter 13 Qualifications in Athens, GA?

Now, let’s look at the informal qualifications. As outlined below, Chapter 13 debtors must make monthly debt consolidation payments. These payment amounts vary significantly, mostly according to the amount of secured debt arrears and other allowed claims. Typically, however, a Chapter 13 payment is about the size of a rent or mortgage payment.

These debtors must demonstrate an ability to make this payment, mostly based on the information they submit in Schedules I and J. These are the monthly income/expense schedules. So, unless the debtor has substantial disposable income, the trustee might not approve the repayment plan proposal.

Bear in mind that the only amount that matters is post-bankruptcy disposable income. Thus, the money a family was spending on credit card and other unsecured debt payments is now disposable income.

Bankruptcy Procedural Issues in Athens, GA

The bankruptcy filing package must include a proposed repayment plan. The plan payment must be sufficiently high to retire all allowed claims in either thirty-six or sixty months, depending on the bankruptcy’s length.

ABout six weeks after the filing, the debtor meets with the trustee. If the plan meets minimum legal requirements, mostly the complete repayment rule, the trustee almost always approves it. If the trustee signs off on the plan, the judge usually approves it as well, often without requiring a hearing. If creditors do not want to wait many months for repayment, that’s normally too bad. In most cases, creditors get what they get and they don’t throw a fit.

Other disputes sometimes arise as well, mostly over asset exemption. Typically, a Georgia bankruptcy lawyer resolves these disputes out of court.

Advanced Options in a Georgia Chapter 13 Bankruptcy

Five years is a long time. Normally, financial circumstances either get better or worse. Additionally, bankruptcy does not stop the world from turning. People still need to live their lives, and that sometimes involves borrowing money.

When financial circumstances change, available options usually include a conversion to Chapter 7, early exit from bankruptcy, and a hardship discharge.

Converting Chapter 13 to Chapter 7 Bankruptcy in Athens, GA

Debtors have an absolute right to convert from Chapter 13 to Chapter 7 at any time. This conversion instantly means no more plan payments. An early exit usually involves a financial windfall, like an inheritance, or increased monthly payments. A hardship discharge is usually available if, wait for it, the debtor has a financial hardship. Usually, this situation must either be permanent or be expected to last until the bankruptcy ends.

Bankruptcy debtors may borrow money to buy cars or even houses. However, a Georgia bankruptcy lawyer must obtain judicial approval.

When Creditors Object to Debtors Borrowing Money in GA

Unsecured creditors often object to these requests. They argue that instead of buying something, debtors should use the extra money to repay them. Unsecured creditors usually receive little or nothing in a Chapter 13, as these obligations usually aren’t allowed claims. Nevertheless, the judge usually grants a motion to incur additional debt, as long as the debtor has a compelling need for the item and the purchase is reasonable. The aforementioned Batmobile and Wayne Manor are usually not reasonable options, even if they are priced to sell.

Chapter 7 Bankruptcy in Georgia

This form of bankruptcy quickly ensures a fresh start for distressed debtors. What they do with that fresh start is largely up to them.

Qualifying for Chapter 7

As discussed above, Chapter 7 filers must complete two financial management courses. More importantly, they must qualify under the means test.

Debtors are presumptively eligible for Chapter 7 if their annual incomes are below average for that family size in that jurisdiction. As of November 1, 2020, this amount was $91,161 for a family of four in Georgia. If your income is above that level, you might still qualify for Chapter 7 based on your actual monthly expenses. Some Georgia ZIP codes are much more expensive to live in than other ones.

There are informal qualifications as well. The income informal requirement is basically the opposite of the informal Chapter 13 qualification. Chapter 13 debtors must be substantially in the black every month. In most cases, Chapter 7 debtors must be at least marginally in the red. If that’s not the case, the trustee may question the need to file this extreme form of bankruptcy.

Reaffirmation agreements could be an issue as well. Most bankruptcy debtors voluntarily reaffirm their house notes and car notes, as well as their ISP and other service contracts. If a debtor reaffirms too many obligations, once again, the trustee might ask why the debtor is filing Chapter 7 in the first place.

Procedural Issues

The trustee’s job in a Chapter 7 is much simpler than a Chapter 13 trustee’s job. Since there is no monthly repayment in a Chapter 7, the trustee basically just verifies the debtor’s identity and income. To that extent, the trustee requires documents, such as:

• Current, government-issued photo ID,
• Recent pay stubs,
• Social Security card, and
• Recent tax returns.

The trustee could request other documents as well, such as loan instruments or insurance declaration pages. Debtors have a legal duty to promptly comply with all such requests, even if the request seems rather pointless.

Assuming there are no fraud or other red flags, most trustees submit discharge recommendations after a brief waiting period. The judge usually signs these orders without requiring a hearing.

Part of filing bankruptcy is recovering from bankruptcy. As mentioned, bankruptcy gives you a fresh start and the rest is up to you.

A Georgia bankruptcy lawyer can help former bankruptcy debtors raise their credit scores. Attorneys can connect these people with lenders, even credit card companies, who work with people that have damaged credit. Responsible credit use is one of the best ways to raise yoru score.

Paying existing bills on time might be an even better way. To help them remain current, many debtors make thirteen payments a year. They do not miss the additional $100 a month or so. And, the financial reserve helps them pay off the loan early or withstand another financial storm, such as job loss or divorce, which comes into their lives.

Advanced Options in a Chapter 7

Since this form of bankruptcy only lasts about six or nine months, at least in most cases, early exit is usually not an issue. However, debtors frequently combine a Chapter 7 and CHapter 13 into an informal bankruptcy called a Chapter 20. You probably didn’t see that nickname coming.

Assume Hattie files Chapter 7 to dispose of some back taxes. But she doesn’t qualify for discharge under the complex rules. Most jurisdictions would allow Hattie to immediately file a Chapter 13. She wouldn’t be eligible for a discharge. But she doesn’t need one. Hattie only needs to extend the Automatic Stay so she can pay the IRS.

Apropos of nothing, it is possible to file bankruptcy again and receive a complete discharge again. The waiting period is usually about five years. A Georgia bankruptcy lawyer can fill you in on the complex rules.

Many Chapter 7s also include asset redemption. Assume Hattie still owes $3,000 on a used car that’s only worth $1,000. If she pays the current fair market value before the bankruptcy ends, she might own the car free and clear, saving her thousands of dollars.

Choose an Experienced Clarke County Lawyer

It’s almost impossible to choose between Chapter 7 and Chapter 13 on your own. For a free consultation with an experienced Georgia bankruptcy lawyer, contact Morgan & Morgan, Attorneys at Law, P.C. Convenient payment plans are available.