The decision to file for bankruptcy isn’t an easy one. Bankruptcy is a last resort solution to financial difficulties. Once the decision to file for bankruptcy has been made, there is still the decision of whether to file Chapter 7 or Chapter 13.

If you’re leaning toward filing Chapter 7 bankruptcy in Georgia, there are some things you need to know before you proceed. For example, you need to see if you qualify to file for Chapter 7 bankruptcy or not. You will also need to know what items are included in Chapter 7 and which ones, if any, are exempt.

Chapter 7 Bankruptcy: What Is It?

Chapter 7 bankruptcy is the form of bankruptcy that some people call “liquidation” bankruptcy. In this form of bankruptcy, whatever property or assets that aren’t covered by exemptions must be surrendered to the trustee and sold. The proceeds from the sale of your assets are used to pay your creditors.

Knowing what is exempt and what isn’t is crucial to filing a Chapter 7 case. The result of giving up your nonexempt items is that you typically come out of Chapter 7 bankruptcy free of most, if not all, of your debt. However, there are strict qualifications to meet before you can file a Chapter 7 case.

How Does Chapter 7 Bankruptcy Works in Georgia?

Filing Chapter 7 bankruptcy means the court will place a stay on your current debts. During the temporary stay, creditors can’t collect payments, foreclose on your house, repossess your property, garnish your wages, evict you, or turn off your utilities. The court appoints a bankruptcy trustee after taking legal possession of your property.

The trustee will then review your finances and assets and oversee your case. The trustee will sell your nonexempt property and pay your creditors with the proceeds from the sale. They will also arrange a creditor meeting where you go to a courthouse and answer questions about filing your Chapter 7 bankruptcy.

The exempt property varies between the states. Some states allow you a choice between the state exemption list and the federal exemption list. However, most Chapter 7 bankruptcy cases are what is known as no asset cases. So, the property that isn’t exempt will have a valid lien against it.

Your remaining debts are discharged at the end of the Chapter 7 process. The court typically discharges your debts about four to six months after you file your case. When a debt is discharged, you no longer have to pay it. However, some debts, like child support, alimony, student loans, court fees, and tax debts, can’t be discharged through bankruptcy.

Eligibility for Bankruptcy in Georgia

If you plan to file for Chapter 7 bankruptcy relief in Georgia, your income must be below a certain amount for you to qualify. To prove your income meets the qualifications, there are two “means tests” that you use.

The first of the two tests is a simple comparison between your household income and the median income for households that are of similar size in your state. US Census data helps to determine the median income. For example, the 2020 census showed that a household consisting of three people had an average income of $75,460 in the state of Georgia. If your income was less than that and you had a three-person household, you would qualify to file Chapter 7 in Georgia.

The income limits used to facilitate the means test are adjusted regularly. The numbers used to calculate the Georgia median income as of April 1, 2022, had increased by approximately $4,000 over the 2020 data. So, a three-person household in 2022 needed to make less than $79,980 to move forward with a Chapter 7 filing.

You can still qualify for Chapter 7 if your income is more than the median income in Georgia. The second means test calculates your disposable income. Disposable income is calculated by subtracting your typical monthly expenses from your monthly income. If this calculation indicates that you have very little disposable income each month, you can still qualify to file under Chapter 7.

In addition to these qualifications, there are some other qualifications you must meet before filing a Chapter 7 bankruptcy. For example,

• No Chapter 7 bankruptcy filing in your name in the last eight years.
• No Chapter 13 bankruptcy filing in your name in the last six years.
• You must wait 181 days before filing if you attempted to file either Chapter 7 or Chapter 13, and the case was dismissed.
• Typically, an individual must complete a credit counselling course within 180 days before filing for bankruptcy.
• The court can dismiss the case, even if you meet other eligibility requirements if it believes you are attempting to defraud creditors and simply get out of paying them.

Secured and Unsecured Debt

When you file bankruptcy, you are saying that you can no longer afford to pay the debts you have incurred. The court will typically separate your debts into two categories: secured debt and unsecured debt. You need to understand the difference between the two because they are handled differently in bankruptcy cases.

Unsecured debt is the debts like credit cards and medical debts. There is no collateral attached to the debt, so the creditor has no right to repossession. These debts are the most likely to be eliminated. Remember, some things like child support or alimony can’t be discharged through bankruptcy.

Secured debt has collateral attached to it. Your creditor can repossess the property if you don’t pay the debt. Typically, some kind of contract is involved; for example, a car loan or a mortgage are considered secured debts. In bankruptcy, you will either need to give up the property or work out an arrangement to pay the creditor for secured debts.

In Chapter 7 bankruptcy, usually, your unsecured debt is discharged. Secured debt, on the other hand, is handled differently. Typically, you can’t eliminate secured debt in a Chapter 7 filing. You have three options available to you for handling secured debt.

1. Relinquish rights to the property and return it to the creditor.
2. Keep your property and keep making payments on it—the state exemption must cover the equity you have in the property.
3. Buy the property with a lump sum payment. Typically, this doesn’t happen because there aren’t enough assets to allow for this option.

Georgia Bankruptcy Exemptions: What Do You Lose and What Do You Keep?

First, understand that you must live in Georgia for 180 days before filing bankruptcy in the state. However, you can’t use the Georgia exemption until you have lived there for at least 730 days. If you haven’t been in Georgia that long, you must use your previous home state’s exemptions.

Understanding what bankruptcy exemptions are and how they affect your Chapter 7 bankruptcy case is crucial. Bankruptcy exemptions are protections for the equity in the certain property in bankruptcy cases. In a Chapter 7 bankruptcy case, the non-exempt property can be sold by the trustee to satisfy the debts that you owe.

Many people wonder if they can protect their homes. Georgia offers a bankruptcy homestead exemption. This exemption is typically divided into age groups as well as married versus single persons. The specific text for the Georgia homestead exemption can be found in Georgia Code Ann. § 44-13-100(a)(1) & (a)(6), 44-13-1.

The Georgia homestead bankruptcy exemption allows a $21,500 exemption for single persons and a $43,000 exemption for married persons when the property is owned by one spouse. If you file a joint bankruptcy with your spouse and both of you own the property, you can double your exemption. If you don’t use the entirety of your homestead exemption for your home, you are allowed to use up to $5,000 toward any property.

There are other exemptions in Georgia besides the homestead exemption. Here are some of the most common:

• Georgia Motor Vehicle Exemption: up to $5,000 in equity in a motor vehicle
• Jewellery: $500 of the value
• Animals, crops, clothing, appliances, books, household goods, musical instruments, furnishings: $5,000 of value (up to $300 for each item)
• Burial plot: if you choose not to use the homestead exemption
• Compensation for future earnings needed for support: $7,500
• Health aids
• Personal injury recoveries: $10,000
• Wrongful death recoveries needed for support
• Alimony and child support needed for support
• Unemployment compensation, public assistance, Social Security benefits
• Worker’s compensation
• Veteran’s benefits
• Old age assistance
• Aid to blind persons and aid to disabled persons
• Crime victim’s compensation
• Implements, books, and tools of the trade: $1,500
• Wage exemption: 75% of earned but unpaid disposable earnings or 40 times the hourly minimum wage, whichever is greater; the judge can authorize more for low-income debtors
• Wildcard exemptions: $1,200 of any property; up to $10,000 of unused homestead exemption
• Certain retirement plans and pensions that are necessary for the support
• Certain insurance benefits

In addition to the Georgia exemptions, you can use the federal nonbankruptcy exemptions, the federal Covid-19 recovery rebate exemption, and exemptions for certain tax-exempt retirement accounts. In the state of Georgia, you can’t use federal bankruptcy exemptions. Georgia requires that you use the state exemptions instead.

It’s important that you speak with your attorney regarding the exemptions that are available in Georgia. The kind and amount of exemptions are subject to change based on the state’s current legislation.

Too Deep in Debt to See a Way out? Call a Georgia Bankruptcy Attorney Today

When you file Chapter 7 bankruptcy in Georgia, it’s important to understand how exemptions work as well as the difference between secured and unsecured debts. The attorneys at Morgan & Morgan can help you navigate the confusing world of filing for bankruptcy.

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