Most people file bankruptcy for reasons that are at least mostly beyond their control. High medical bills, which prompt about two-thirds of all bankruptcy filings in Georgia, are a good example. If you’re asking what does Chapter 7 bankruptcy cover, it covers unsecured debts like medical bills, credit cards, payday loans, and more.

Sometimes, unsecured debts create a snowball effect. To pay medical and other expenses, families fall behind on other bills. In the 2010s, the Supreme Court diluted a number of the protections in the Fair Debt Collection Practices Act. This dilution leaves families vulnerable to things like foreclosure and repossession, even if they are only one or two payments behind.

Although relief is available, the bankruptcy process is quite complex. An Athens bankruptcy lawyer does more than guide families through this legal minefield. An attorney also stands up for debtors in court. This strong advocacy is especially important if you have priority unsecured debts, like student loans. Finally, only an experienced attorney may know how to unlock some advanced bankruptcy options which maximize your fresh start.

Benefits of Chapter 7 Bankruptcy in Georgia

Asset protection is one of the biggest benefits of bankruptcy. Many creditors can seize and sell your assets in order to pay debts. Frequently, they do not even need court orders to do so. Bankruptcy protects your most important assets, such as:

• Retirement Account: Financially, an IRA, 401(k), or other nest egg account is often a family’s largest asset. These accounts usually have a substantial emotional value as well. They represent future security and a reward for long-term financial discipline. The Supreme Court recently reaffirmed that such assets are 100 percent exempt, no matter how much money the account contains.
• Motor Vehicle: Most Georgia bankruptcy debtors can protect up to $5,000 in vehicle equity, which when you think about it, is a huge sum of money. Most people who drive new cars have almost no equity in them. If you drive a used car, its pure financial value is often practically zero. Many people spread the $5k exemption among several different vehicles.
• Government Benefits: Some people are afraid to file bankruptcy because they think they will lose their Social Security, VA disability, or other government benefits. But all these benefits are exempt. Commingling benefit income and earned income is sometimes an issue. An Athens bankruptcy lawyer can help you avoid this minefield.
• Personal Property: Most furniture, clothes, electronics, and other personal property is exempt. As is the case with all other assets, the as-is cash value (garage sale value) rule applies. Michael’s $3,000 TV set might be worth $300, or even less, at a garage sale.
• Home: Debtors may protect up to $43,000 of home equity. Once again, if you have lived in your house for less than ten or fifteen years, you probably have little equity. SOme advanced options, like lien stripping, are sometimes available in a Chapter 7. Assume Joan used 80/20 financing to buy a $200,000 home. So, there is a $160,000 senior lien and a $40,000 junior lien. Further assume Joan’s house is now only worth $160,000. Since she is upside down on the note, she cannot refinance it. A judge could declare that the $40,000 note is a dischargeable unsecured debt. As a result, Joan could save tens of thousands of dollars each year for the next several years.

If you are behind on house payments and want to keep your home, Chapter 13 bankruptcy might be a better option. This form of bankruptcy gives people up to five years to gradually erase secured debt delinquency, like past-due mortgage payments. The same property exemption and personal protection rules apply.

On the other hand, if you want to simply walk away and get a fresh start, Chapter 7 is the way to go. Most debtors are not financially responsible for the unpaid balance of the loan. Furthermore, Chapter 7 looks better on your credit report than foreclosure and other such entries which indicate that the debtor gave up and quit.

Generally, these assets are safe no matter how much money the debtor owes. Furthermore, most debtors do not need to worry about adverse actions against these assets after the bankruptcy closes.

Speaking of adverse actions, Section 362 of the Bankruptcy Code is another important benefit. The Automatic Stay immediately halts things like:

• Eviction: Timing matters in eviction matters. If the judge has not yet signed an eviction order, even if there has been a hearing, the Automatic Stay usually applies. If the judge has signed such an order, an Athens bankruptcy lawyer can show you other options.
• Utility Shut Off: This area is a bit complex. The Automatic Stay halts all collection activities. However, unless the debtor either pays the outstanding balance within 20 days or provides adequate assurance of payment, which is a rather vague phrase, the utility company may resume collection activities, including utility shutoff.
• Repossession: Technically, most lenders can repossess vehicles if the owner is more than 30 days delinquent. Many lenders use electronic devices to disable the engine’s ignition after about two weeks of delinquency.
• Wage Garnishment: Many creditors do not need court orders to garnish your wages. In some cases, creditors can seize up to 50 percent of your paycheck. Bankruptcy puts all your money in your pocket. 
• Foreclosure: Many people took advantage of coronavirus mortgage deferrals and eviction moratoriums during the early days of the pandemic. At the time, these temporary relief programs seemed like a lifeline. When these programs end, most creditors will demand immediate payment. Most families do not have the resources to make four or five catch-up payments in the span of two or three months.

Unless there is clear evidence that the debtor is abusing the process, the Automatic Stay kicks in the moment debtors file and does not end until a judge signs the final bankruptcy order.

Debt discharge (debt forgiveness) might be the biggest benefit of a Chapter 7 bankruptcy in Athens. Since this benefit is so important, and has many complexities, we’ll examine it in detail below.

Chapter 7 Procedure

Contrary to popular myth, most people qualify for Chapter 7. The means test is probably the biggest hurdle. But this obstacle is far from insurmountable.

The means test prevents people from filing Chapter 7 if their annual income exceeds the average level for that household size in that jurisdiction. In Georgia, as of May 15, 2021, this amount is just under $93,000 for a family of four. 

If you are just above this level, you might still qualify for Chapter 7. You might qualify based on your monthly expenses, and with the help of an Athens bankruptcy lawyer.

Once debtors file their voluntary petitions, the aforementioned asset protection provisions immediately apply, at least in most cases.

About six weeks after they file, Chapter 7 debtors meet with bankruptcy trustees (people who oversee cases for judges). The bankruptcy trustee verifies the debtors’ identity and looks for evidence of bankruptcy fraud. So, most debtors must produce certain documents, such as:

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

If any requested documents are unavailable, an Athens bankruptcy lawyer can usually convince the trustee to accept a substitute document.

If no red flags arise during this meeting, and they usually don’t, and there are no priority unsecured obligations or other serious issues, most trustees recommend discharge. In these cases, most judges sign such orders without requiring hearings.

General Unsecured Debt Discharge

Unsecured obligations are debt which involve no property or other security agreements. Instead, the debtor simply makes an oral or written promise to pay. Some examples include:

• Credit Cards: Many cardholders owe thousands of dollars to credit card companies. Most banks issue new cards when borrowers max out their cards. It doesn’t take long to rack up tens of thousands of dollars in credit card debt. That’s especially true if a financial emergency, like a job loss, forced cardholders to use plastic for everyday expenses.
• Medical Bills: Like credit cards, these bills add up quickly. The average hospital bill is about $3,000 per day. Five or six nights in a hospital, followed by five or six months of physical therapy or other treatments, costs more money than most people can afford. Even if you have insurance, 20 percent of $50,000 or $75,000 is a lot of money.
• Payday Loans: These unsecured loans are almost as convenient as credit cards. Click a few boxes on a website and money appears in your account just like magic. The payday loan treadmill is very difficult to get off. The loan repayment means the next paycheck is short, and on and on we go.
• Small Business Association Loans: There is some controversy about how many new small businesses fail, but no matter how you slice it, many of them don’t make it. SBA loans are one of the few government-guaranteed obligations which are automatically dischargeable in bankruptcy. 

In Chapter 7, “discharge” means the judge eliminates the legal obligation to repay the debt. The collateral consequences of debt, if any, remain. Bankruptcy judges do not have the power to act in this area.

Assume Jerry owes tuition and fees to State U. The university will not let him graduate until he pays. If Jerry filed Chapter 7, State U cannot try to collect the debt and Jerry doesn’t have to pay it. However, Jerry cannot get his diploma until he pays the debt or his Athens bankruptcy lawyer makes other arrangements.

Priority Unsecured Debts

FSOs (Family Support Obligations), back taxes, and student loans are the three most common kinds of priority unsecured debts. Financially, these obligations are unsecured. There is no property or other security agreement. But largely because of social issues, discharge is limited.

Child support, alimony, and other FSOs are usually not dischargeable in any situation. The “deadbeat dad” image is not always accurate. But it is a very powerful one.

Even though these obligations are nondischargeable, the AUtomatic Stay still halts wage garnishment, bank account levy, and other aggressive collection tactics.

Usually, the Georgia Attorney General has almost unlimited power to take these actions. As mentioned, the state can garnish up to 50 percent of your wages for alimony and child support. A bank account levy basically locks your account. You may put money in but not take money out. Only the Attorney General has the key.

There are some very specific rules about past-due income tax discharge. Most of them involve a calendar and little else.

• Three Years: The income taxes must be at least three years old. Note that only income taxes are dischargeable in bankruptcy. Property taxes, trust payments, and everything else is nondischargeable.
• Two Years: The relevant returns must have been on file for at least two years. The substitute returns the IRS files on the taxpayer’s behalf do not count. Note that Tax Day is often not April 15. The IRS has been known to oppose discharge because the taxes are just a day or two shy of the three or two-year requirements.
• Eight Months: Income taxes are nondischargeable if the taxing authority has not assessed the debt within the last eight months. A tax transcript usually includes assessment notes. Generally, however, if the IRS has sent a letter in the last eight months which includes the amount due, the debt has probably been assessed.

The aforementioned collateral consequences rule applies here. If the taxing authority filed a lien before the taxpayer filed bankruptcy, the lien stays until an Athens bankruptcy lawyer makes appropriate arrangements.

Likewise, student loans are only dischargeable if debtors have undue hardships. Georgia’s bankruptcy courts still use the Brunner Rule. This rule only permits discharge if the debtor has made a good faith effort to repay the loans, repayment would force the debtor’s income below the poverty line, and the hardship will last for at least most of the loan term.

It’s rather difficult for an Athens bankruptcy lawyer to obtain a full discharge under the Brunner Rule. However, a partial discharge is usually available. Most judges send these matters to mediation, where banks are forced to compromise in key areas.

An Athens Bankruptcy Lawyer Can Help You Explore Chapter 7 in Georgia

Are you asking what does Chapter 7 bankruptcy cover in Athens and Georgia? Chapter 7 covers most unsecured debts. For a free consultation with an experienced Athens bankruptcy lawyer, contact Morgan & Morgan, Attorneys at Law, P.C. Convenient payment plans are available.

 

This article was originally published on February 15, 2021 and was updated June 08, 2021.