Filing for Chapter 7 is a big decision. It can provide tremendous financial relief, but it may require the surrender of property and harms your credit.

The first step is deciding if bankruptcy is appropriate for you. If you believe it might be, we list the steps you need to take below.

Step 1: Decide If Chapter 7 Bankruptcy Is Appropriate

Chapter 7 bankruptcy, or “liquidation bankruptcy,” offers debtors a fresh financial start by discharging many unsecured debts, such as credit card- and medical bills. It is particularly beneficial when individuals have significant unsecured debt and limited income, making it difficult or impossible to manage their financial obligations.

Chapter 7 bankruptcy allows individuals to keep exempt property. However, the bankruptcy trustee seizes and sells non-exempt assets and distributes the proceeds to creditors. But, in many cases, debtors have little or no non-exempt property.

Despite its advantages, Chapter 7 bankruptcy has significant negative impacts. It remains on an individual’s credit report for 10 years, making it more challenging to secure credit. Also, it can lead to the loss of non-exempt assets, including homes, vehicles, savings, and investments.

Chapter 7 may also be disadvantageous to those with substantial non-dischargeable debts, such as student loans, child support, and certain taxes.

Furthermore, filing for bankruptcy can be emotionally difficult and carries a stigma, even though it’s a common legal tool used by millions to manage insurmountable debt. The cost of hiring an attorney and paying court filing fees should also be considered.

Debtors should consider Chapter 7 bankruptcy when their debts become unmanageable, when they’re unable to make required payments, and other debt-relief options fail. It should be a last resort after considering all other alternatives, as the decision to file for bankruptcy is a significant one with far-reaching implications.

When to Consider Chapter 13 in Athens

Chapter 13 bankruptcy, often referred to as a “wage earner’s plan,” is a preferable option over a Chapter 7 bankruptcy in several circumstances. The primary advantage of Chapter 13 is that it allows debtors with a stable income to develop a plan to repay all or part of their debts, without the liquidation of non-exempt assets.

For instance, Chapter 13 makes more sense when you’re behind on your mortgage or car loan payments but want to keep those assets. Chapter 13 allows you to make up the missed payments over time and reinstate the original agreement. This option is not available in Chapter 7.

Also, Chapter 13 can discharge some debts that are non-dischargeable in Chapter 7, such as some taxes, fines, and marital debts.

Consider a Chapter 13 bankruptcy when any of the following apply::

• You have a regular income and can afford to make monthly payments toward your debt.
• You’re behind on your mortgage or car loan and want to avoid foreclosure or repossession.
• You have debts that are not dischargeable under Chapter 7.
• You have non-exempt assets that you want to retain.
• You’ve previously filed a Chapter 7 bankruptcy and are ineligible to file another.

Step 2: Determine If You Meet Georgia’s Eligibility Requirements

In Georgia, Chapter 7 bankruptcy eligibility is determined by a means test, as per the federal bankruptcy code. The first step in this test compares your income against the median income for a household of your size in Georgia. If your income is below the median, you’re eligible for Chapter 7.

If your income is above the median for the state, you may still qualify by passing a second part of the test which factors in disposable income and unsecured debts.

Furthermore, debtors are ineligible if they had a bankruptcy petition dismissed due to willful failure to appear or comply with court orders in the last 180 days.

If debtors are ineligible for Chapter 7, filing a Chapter 13 may present an alternative. Chapter 13 involves a repayment plan where you pay off your debts over three to five years while retaining all assets. Chapter 13 is a good option when you have consistent income and want to prevent foreclosure or repossession.

Step 3: Compile a List of Dischargeable and Non-Dischargeable Debts in Athens

In a Chapter 7 bankruptcy, the presence of dischargeable versus non-dischargeable debts plays a pivotal role in the debtor’s decision to file. Dischargeable debts are those that the bankruptcy wipes out. Non-dischargeable debts survive Chapter 7.

 

The kind of debt you carry should significantly impact your decision to file Chapter 7. If most of your debts are dischargeable, Chapter 7 may be a better choice since it eliminates these obligations, providing you with a fresher financial start. However, if your debt comprises primarily non-dischargeable obligations, Chapter 7 may fail to provide the relief you are seeking, as you’ll still be required to pay these debts after bankruptcy.

 

Some types of debt are generally non-dischargeable, but exceptions may apply. For instance, student loans are typically non-dischargeable, but they can be discharged if the debtor demonstrates “undue hardship.”

 

Debts that are typically dischargeable in a Chapter 7 bankruptcy include:

• Credit card debt
• Medical bills
• Personal loans
• Utility bills
• Certain tax penalties and unpaid taxes (older than three years)

 

Debts that are typically non-dischargeable in a Chapter 7 bankruptcy include:

• Student loans (unless the debtor can demonstrate undue hardship)
• Child support and alimony
• Certain tax obligations
• Debts for personal injury caused by the debtor’s drunk driving
• Fines and penalties owed to government agencies

Note that you may have debts that fit into a gray area in terms of discharge eligibility. If so, contact a bankruptcy lawyer for a consultation.

Step 4: Compare Your Current Budget With the Projected Budget After Filing for Chapter 7

Regarding personal finance, a budget is essential for managing income and expenses. In the context of bankruptcy, understanding the differences between a pre-Chapter 7 bankruptcy budget and a post-filing budget is crucial.

Before filing a Chapter 7 bankruptcy, your budget likely contains high monthly debt payments, such as credit card bills, personal loans, medical bills, overdue utility bills, and other unmanageable payments. The cost of servicing these debts often leaves little room for essential expenses like housing, food, and healthcare.

For example, suppose a person earns $3000 a month. Their pre-bankruptcy budget might be burdened with $1500 towards debt repayment, $1000 for rent, $300 for food, $100 for utilities, and $100 for transportation, leaving virtually nothing for healthcare or any unexpected expenses.

After filing Chapter 7, many of those debts get discharged, relieving a significant portion of the debt burden. Using the above example, after filing Chapter 7, the person might now have $1500 previously allocated for debt repayment available for other purposes. He or she could distribute this to increase their food budget, cover healthcare costs, save for an emergency, or contribute to a retirement plan.

Step 5: Determine Exempt Property in Athens

In a Georgia Chapter 7 bankruptcy, some property is exempt, meaning it is ineligible for seizure by the trustee. The exemption amount varies based on the type of property. Generally, exemptions cover necessary and reasonable items for maintaining a basic standard of living.

Common exempt property in Georgia includes:

• Homestead or real property up to $21,500 for singles and $43,000 for married filing jointly
• Motor vehicles up to $5,000 in equity
• Household goods, appliances, and furnishings up to $5,000 for singles and $10,000 for married filing jointly
• Clothing and personal effects
• Tools of trade
• Certain insurance benefits
• Unpaid but earned wages
• Certain pensions and retirement accounts
• Public benefits like unemployment, social security, and workers’ compensation

Step 6: Gather Statements for all of Your Debts in Athens

Gathering all necessary financial statements and bills is an essential step when preparing to file for Chapter 7 bankruptcy. It’s crucial to have a comprehensive understanding of your financial situation and to provide accurate information to the bankruptcy court. Failing to disclose any assets may lead to potential legal consequences.

To ensure you have all the necessary documentation, follow these steps:

1. Compile a list of all your creditors: Make a comprehensive list of all your outstanding debts, including credit cards, loans, medical bills, utilities, and any other financial obligations.
2. Gather financial statements: Collect bank statements, credit card statements, and loan statements for the past two months. These statements provide a clear picture of your expenses and outstanding balances.
3. Collect tax returns: Gether copies of your federal and state tax returns for the past three years. These documents help establish your financial history and income level.
4. Organize proof of income: Gather pay stubs, employment contracts, and any other documents that demonstrate your current and past income. This includes income from employment, self-employment, rental properties, or other sources.
5. Obtain recent bills: Collect recent utility bills, mortgage or rent statements, and any other bills related to your living expenses. These documents help determine your monthly household expenses.
6. Provide documentation for assets: Include documentation for any assets, such as real estate, vehicles, investments, or retirement accounts.

Remember, it is essential to be thorough and accurate when providing documentation for your bankruptcy filing. Failure to include all obligations and assets may result in legal consequences and potentially jeopardize your bankruptcy case. Consult a bankruptcy attorney for further information.

Reach Out to A Lawyer Today in Athens

Consulting a bankruptcy attorney is crucial when contemplating bankruptcy. An experienced bankruptcy attorney provides valuable guidance and helps you make informed decisions. Bankruptcy attorneys possess an expert understanding of bankruptcy laws and procedures, allowing them to navigate the system to obtain the best result.

A bankruptcy attorney assesses your financial situation, helping you determine the most suitable type of bankruptcy and guiding you through the necessary paperwork and documentation. They represent you in court, negotiate with creditors, and protect your rights. By consulting a bankruptcy attorney, you gain peace of mind knowing that you have a knowledgeable advocate on your side.

Contact Morgan and Morgan for a consultation today.

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