Navigating bankruptcy is a complex process when you have substantial assets on the line. For homeowners, what happens to their property is always a key consideration—be it a primary residence, a second home, or an investment property.

The impact of bankruptcy on these assets varies based on myriad factors, including your income and whether you file a Chapter 7 or Chapter 13. Understanding the nuances of Georgia bankruptcy law is crucial to making informed decisions about whether bankruptcy is right for you.

In the paragraphs below, we discuss the key factors that determine if you can keep your home in an Athens, GA, bankruptcy:

• Real estate and the automatic stay
• Keeping your primary residence in Chapter 13
• Limited circumstances allow you to keep your primary residence in Chapter 7
• Can you keep secondary homes and investment properties in Chapter 13?
• Can you keep secondary homes and investment properties in Chapter 7?

Real Estate and the Automatic Stay in Athens

The automatic stay is a powerful provision in bankruptcy law that immediately halts foreclosure proceedings upon filing for bankruptcy. As soon as a debtor files under either Chapter 7 or Chapter 13, the automatic stay goes into effect, creating a legal barrier that prevents mortgage lenders from initiating or continuing foreclosures.

However, it’s essential to note that while the automatic stay momentarily halts foreclosure, whether a debtor can retain their home post-bankruptcy differs based on the type of bankruptcy filed. In a Chapter 7 bankruptcy, a debtor may ultimately need to sell their home to pay off their debts, though there are exemptions under Georgia law. Conversely, a Chapter 13 bankruptcy allows the debtor to reorganize obligations and develop a repayment plan, often enabling them to keep their home.

Keeping Your Primary Residence in Chapter 13

Chapter 13 bankruptcies are often referred to as home-saver bankruptcies because they offer the most viable option for families to stay in their homes, even when they have fallen behind on their mortgage payments.

How the Chapter 13 Bankruptcy Process Works

The process begins with filing a bankruptcy petition in court. This filing initiates the automatic stay, a court order that immediately prohibits creditors from collecting most debts, allowing the debtor temporary relief from collection efforts. In the context of a home, the automatic stay halts ongoing foreclosure proceedings and prevents the lender from initiating new ones.

The next phase involves devising a payment plan, which the debtor proposes and the court must approve. Payment plans consolidate all outstanding debts into a single monthly payment and last three to five years. For delinquent homeowners, the plan includes arrearages.

Once the court approves the plan, the debtor begins making monthly payments to the bankruptcy trustee, who then distributes these payments to the creditors. Success with Chapter 13 requires staying consistent with payments to the trustee. Failure to keep to the plan can lead to case dismissal and a restarting of foreclosure.

After completing all payments under the court-approved plan, the debtor receives a discharge. Adhering to the plan eliminates all mortgage arrearages, so the debtor keeps the home.

An Example of Saving a Home Through a Chapter 13 Bankruptcy

Suppose a debtor is facing foreclosure due to missed mortgage payments. He files a Chapter 13 bankruptcy, which immediately stops the foreclosure proceedings due to the automatic stay.

The debtor then proposes a payment plan that includes his regular monthly mortgage payment plus an additional amount to cover the arrearages over the next five years. The court approves this plan, and he begins to make his monthly payment to the bankruptcy trustee.

Over the next five years, the debtor makes his monthly payments under the plan, catching up on his overdue mortgage payments while meeting his other regular monthly obligations.  The court discharged the Chapter 13 bankruptcy, and he has now caught up on his mortgage payments and retained his home. His mortgage is current, and the threat of foreclosure has been eliminated.

Limited Circumstances Allow Chapter 7 Petitioners to Keep Primary Residences in Athens

Chapter 13 bankruptcy is often the most effective route to retaining a home during bankruptcy proceedings, but Chapter 7 can also achieve this objective in limited circumstances. In the paragraphs below, we explore the requirements and circumstances under which you can keep your home after filing for Chapter 7 bankruptcy in Georgia.

It’s important to note that real estate exemptions in Chapter 7 include primary residences only. If you have a vacation home or investment property, you must surrender them to the bankruptcy trustee. If keeping real estate other than your primary residence is your objective, Chapter 13 may be appropriate.

Requirements for Keeping a Home in Chapter 7

To qualify for an exemption to keep a primary residence,  the debtor’s home equity must fall within the state’s homestead exemption. As of 2021, this exemption in Georgia was $21,500 for individual filers and $43,000 for joint filers.

Also, the debtor must demonstrate the ability to continue making regular monthly payments on the mortgage. If the debtor’s income is insufficient to cover these payments and other basic living expenses, then maintaining homeownership becomes unlikely.

Finally, if debtors want to keep the home, they must sign a reaffirmation agreement with the mortgage lender. This agreement essentially reaffirms the debtor’s commitment to the original loan terms and removes the loan from the bankruptcy proceedings. If the debtor signs the agreement and stays current on their mortgage payments, they can keep their home despite the Chapter 7 bankruptcy.

Liquidation Process in Chapter 7 Bankruptcy

When homeowners cannot qualify for the homestead exemption, they may need to surrender their home to the bankruptcy trustee. In a Chapter 7 bankruptcy, the court appoints a trustee to manage the debtor’s estate. When a home is surrendered, the trustee repossesses it, sells it, and divides the proceeds amongst creditors according to their priority under the law.

During this process, debtors can usually stay home until the court orders an eviction, which may buy them some additional time. However, ultimately, the debtor will likely lose their home if they cannot meet the requirements to keep it under a Chapter 7 bankruptcy.

Can You Keep Secondary Homes and Investment Properties in Chapter 13?

Maintaining ownership of secondary and investment properties while going through Chapter 13 bankruptcy in Georgia is possible, but it comes with specific requirements and conditions. Unlike a primary residence, these properties don’t qualify for the homestead exemption, making their inclusion in a Chapter 13 repayment plan crucial for retention.

The key factor in keeping secondary and investment properties in a Chapter 13 bankruptcy is equity. If the property has significant non-exempt equity, it increases the debtor’s total assets and, consequently, the amount that unsecured creditors should expect to receive through the debtor’s payment plan.

For instance, if an investment property has non-exempt equity of $50,000, then the debtor’s repayment plan must ensure that unsecured creditors receive at least this amount over the plan’s duration. It’s important to remember that these payments are in addition to the regular mortgage payments on the property.

Another crucial requirement is the debtor’s income. A Chapter 13 bankruptcy requires the debtor to have a regular income sufficient to cover the repayment plan, all regular expenses, and all mortgages. This means that the debtor must demonstrate enough income to maintain the mortgages on their primary residence, secondary property, and any investment properties, plus meet the payment plan for the non-exempt equity.

However, if the debtor can’t maintain these payments or if the court determines that keeping the property isn’t in the best interests of the creditors, the property may be seized and sold to pay off debts.

A Chapter 13 bankruptcy offers a lifeline to debtors seeking to retain secondary and investment properties, but its successful navigation requires careful financial planning and legal guidance.

Can You Keep Secondary Homes and Investment Properties and Chapter 7 in Athens?

In a Chapter 7 bankruptcy, the treatment of secondary homes and investment properties differs markedly from that of a primary residence. The protections offered to primary homes via homestead exemptions do not extend to secondary or investment properties, making them vulnerable in a Chapter 7 bankruptcy.

In a second home in Georgia Chapter 7 scenario, such properties are often seen as non-exempt assets. A bankruptcy trustee can seize these non-exempt assets, sell them, and use the proceeds to repay your creditors. For this reason, Chapter 7 is known as a liquidation bankruptcy.

When you file for Chapter 7 bankruptcy, the court creates an estate consisting of all your property, including secondary homes and investment properties. The bankruptcy trustee then reviews this estate and separates your assets into exempt and non-exempt categories. In Georgia, while there are exemptions that protect a certain amount of equity in your primary residence, these do not apply to secondary or investment properties.

Therefore, if there’s substantial equity in your second home or investment property, the trustee can sell the property, pay off any existing mortgage with the sales proceeds, and then distribute the remaining money among your unsecured creditors. If the equity in the property is minimal or non-existent, the trustee might abandon the property, as its sale provides no benefit to the creditors.

It’s essential to consult with a bankruptcy attorney if you’re considering filing for Chapter 7 bankruptcy, especially if you own secondary or investment properties. The potential loss of these assets underscores the complexity and consequences of this decision.

Bankruptcy doesn’t necessarily mean losing everything. With the right guidance and strategic planning, it’s possible to navigate these proceedings and emerge with a fresh start. It’s crucial to understand your rights, exemptions, and the best legal strategies for your situation. This is where professional legal advice can be invaluable.

 

Get in Touch with Our Best Bankruptcy Lawyer Immediately

If you’re considering bankruptcy or want to explore your options, don’t hesitate to reach out to an experienced legal team. Contact Morgan & Morgan, bankruptcy lawyers based in Athens, GA, who are dedicated to helping you through this challenging process and towards financial recovery.

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