Strategic bankruptcies, as opposed to necessary bankruptcies, are most commonly associated with Chapter 11 business bankruptcies. Additionally, some small businesses are eligible for Chapter 5 bankruptcies. Lawmakers created this streamlined procedure because of the coronavirus pandemic. Technically, businesses do not need to be insolvent to file bankruptcy. They can file bankruptcy to restructure debt and protect themselves from aggressive creditors.

Many very successful business owners file multiple strategic bankruptcies for their companies. “Basically I’ve used the laws of the country to my advantage and to other people’s advantage,” he once explained. Bankruptcy allows companies to shed excess debt and restructure unfavorable contracts, so they emerge leaner, meaner, and more competitive.

A Georgia bankruptcy lawyer can deliver these same benefits to individuals and families who declare bankruptcy. As outlined below, the Automatic Stay keeps creditors at bay. Furthermore, bankruptcy eliminates many unsecured debts. Finally, this legal proceeding gives your Georgia bankruptcy attorney an opportunity to restructure loan agreements and obtain better terms.

The Benefits of Bankruptcy in Athens and Georgia

In a nutshell, bankruptcy usually means short term and long-term relief from creditors and debt collectors.

The Automatic Stay, which is found in Section 362 of the Bankruptcy Code, immediately stops foreclosure, wage garnishment, repossession, and most other adverse creditor actions. Usually, creditors can only take these actions if there is firm evidence of bankruptcy fraud or the debtor threatens the collateral. 

In this context, bankruptcy fraud usually means multiple prior bankruptcy filings within the past six months. James Bond author Ian Fleming once wrote that once is happenstance, twice is coincidence, and thrice is enemy action. The serial filer rules follow this same basic pattern.

• One Prior Filing: People file bankruptcy and don’t follow through for various reasons, and almost anything can happen once. So, if the debtor has one prior filing within the six-month lookback period, if a Georgia bankruptcy lawyer files a motion to extend the stay, the judge usually grants it, no questions asked.
• Two Prior Filings: Such motions are often successful in these situations as well. However, the debtor must show “cause,” which is basically any reason better than “I had to wash my hair the day that document was due.” The judge usually extends the stay for at least most of the case.
• Three Prior Filings: At this point, the law essentially presumes that the debtor is gaming the system and filing bankruptcy simply to frustrate creditors. Some judges won’t even consider a motion to extend the Stay in these situations, and almost none are likely to grant such a request.

The serial filing rules sometimes apply to multiple filings under different names. Assume Sam and Diane’s house is in foreclosure. If Sam files bankruptcy ones, Diane files bankruptcy once, and Sam files again, Sam probably has two bankruptcies on his record, especially if Sam and Diane both listed the house among their assets.

The Automatic Stay in Georgia

The Automatic Stay prevents creditors from seizing certain assets, like your house. Bankruptcy’s property exemptions keep the trustee (person who oversees the bankruptcy for the judge) from liquidating these assets. Other common property exemptions include retirement accounts, personal property, government benefits, such as VA disability benefits, and motor vehicles.

Long-term relief usually involves debt discharge. Most unsecured obligations are dischargeable in bankruptcy. Some examples include:

• Credit Cards: The average card-holding household pays a 20 percent interest rate on about $6,000 of credit card debt. Most financial advisors agree that if your credit card debt exceeds 10 percent of your annual income, there is no way to realistically pay off this obligation.
• Medical Bills: Even if you have insurance, the medical bills related to a long-term illness or catastrophic injury could be almost impossible to pay. In fact, medical bankruptcies account for roughly two-thirds of all the consumer bankruptcy cases in Georgia.
• Child Support: Legally, these obligations are not dischargeable, even though they are unsecured debts. However, as mentioned, bankruptcy’s Automatic Stay stops wage garnishment. Bankruptcy also gives a Georgia bankruptcy attorney a chance to renegotiate child support debt. More on that below.

So, the Automatic Stay and debt discharge allow your family to hold onto more of the money you make. Imagine what you could do with several hundred extra dollars a month.

Consumer Bankruptcy Filing Options

Whether you’re filing a strategic bankruptcy or a necessary bankruptcy, the eligibility requirements and procedural issues are much the same.

High medical bills prompt most necessary bankruptcy filings. Even if you have very good health insurance, if serious illness strikes, the deductibles and copays alone could be financially debilitating. Other people file necessary bankruptcies because something like a job loss, divorce, or business downturn significantly disrupts their income/expense balance.

Chapter 7 eliminates most medical bills, and other unsecured debts, in a matter of months. To qualify for this debt forgiveness program, your household income must be below that state’s average. For example, as of May 15, 2021, a Georgia family of four must earn less than $93,000 to pass the means test and qualify for Chapter 7.

There are some informal qualifications as well. Many trustees (people who oversee cases for judges) only approve Chapter 7s if the debtor’s monthly expenses slightly exceed the debtor’s monthly income.

How Chapter 13 Bankruptcy Differs

In contrast, Chapter 13 is normally a good option for families who are behind on bills and need time to catch up. That’s especially true if the debtor is behind on secured debt payments, like house payments, and wants to retain the property. Mostly depending on the debtor’s annual income, a Chapter 13 could last up to five years.

Most people meet the formal Chapter 13 qualifications. Their overall secured debts cannot exceed $1.4 million, and their overall unsecured debts cannot exceed $400,000.

The informal qualifications could be a different story. Chapter 13 debtors must make monthly debt consolidation payments. The payment amount varies, mostly depending on the amount of secured debt delinquency. But in most cases, the Chapter 13 debt consolidation payment is about the same amount as a car payment.

If the debtor has insufficient monthly disposable income to make this payment, many trustees won’t approve the bankruptcy and many families cannot successfully complete the plan. In these cases, a Georgia bankruptcy lawyer can offer other options, such as a hardship discharge or a conversion to Chapter 7.

What Happens After I File Bankruptcy in Georgia?

After they file, all bankruptcy debtors must show proof of identity and evidence of good intentions. In other words, the trustee must ensure that the debtor isn’t trying to pull a fast one and rule out bankruptcy fraud. So, the trustee normally requests documents, like:

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

Substitutes might be available. For example, if you don’t have your actual Social Security card, the trustee might accept a W-2, letter from the IRS, or another document with your Social Security number pre-printed on it.

Unless the trustee objects to an exemption or a creditor objects to discharge, that’s usually pretty much it for a Chapter 7. Chapter 13 is a bit more complex. As mentioned, Chapter 13 involves a monthly debt consolidation payment. This payment must be large enough to pay all allowed claims before the judge closes the case. “Allowed claims” usually includes secured debt arrears, some priority unsecured debt arrearage, like past-due child support payments, and administrative costs.

Typically, a Georgia bankruptcy lawyer proposes a plan payment. If the payment satisfies all minimum legal requirements, most trustees approve it without asking too many questions.

Strategic Bankruptcy Options

Generally, when interest rates are low, a strategic bankruptcy might be a good idea. And, interest rates will probably remain very low until 2022.

Selective Debt Repayment

Unsecured debt discharge is basically the default option in consumer bankruptcy. Unless the debtor voluntarily reaffirms the obligation, or a Georgia bankruptcy lawyer negotiates a partial payment, the judge will discharge the debt. “Discharge” means the judge eliminates the legal requirement to pay a debt.

Why on Earth would someone choose to keep paying a medical bill or other unsecured debt? There are several reasons.

The Collateral Consequences of Debt

As mentioned, discharge only eliminates debt. It doesn’t affect the collateral consequence of debt. If doctors do not get paid, they usually cut off services, whether or not the patient filed bankruptcy. Some people want or need to remain on a doctor’s nice list. Furthermore, in terms of credit score impact, not all debts are created equally. Amount obviously matters. So does timing. Discharge of an old obligation affects your credit score differently than new debt discharge.

A reaffirmation agreement is the instrument of choice in most situations. Many people simply sign and return a generic reaffirmation agreement the creditor sends. These individuals miss an opportunity to renegotiate both the amount of debt and terms of repayment. More on that below.

Tax Return Timing

Sometimes, timing matters in bankruptcy. Spring tax refunds are a good example. For bankruptcy purposes, these refunds are usually nonexempt assets. Therefore, the trustee could seize a tax return and distribute that money among creditors.

There is no hard-and-fast rule in this area. Generally, however, if your return is less than $1,500, most trustees will not file a motion for turnover. The legal paperwork is too involved, and the 10 percent trustee bounty (a maximum $150 in this case) is not high enough.

If you anticipate a larger return, it might be best to file Chapter 7 once the money is in your account. The trustee could take you to court over the nonexempt refund or perhaps even intercept the payment immediately after the IRS sends it.

Tax return strategic bankruptcy is normally only an issue in a Chapter 7. A Chapter 13 filing might mean the end of large tax refunds, at least until the case is over. Your Georgia bankruptcy lawyer can help you adjust tax withholding and/or prepaid income tax payments, so this money is more likely to stay in your pocket.

Contract Renegotiation

We mentioned reaffirmation agreements earlier. Legally, bankruptcy wipes out all existing debt contracts. So, a reaffirmation agreement is not like a marriage vow renewal. It’s like getting divorced and remarried.

As such, a Georgia bankruptcy lawyer can renegotiate contract terms, such as the UPB (Unpaid Principal Balance) and the interest rate. If you took out a loan when the prince rate was about 5 percent, an attorney might be able to significantly reduce the loan repayment rate. Furthermore, if there is any evidence of lender fraud or other wrongdoing, you might be eligible for an UPB reduction.

If the obligation is unsecured, an attorney negotiates from a position of strength. Creditors know that if they do not make favorable deals, the court will discharge the debt, leaving the creditor with practically nothing. 

Some debts, such as the aforementioned child support obligations, work a bit differently. An attorney can file a motion to modify the obligation based on changed financial or other circumstances.

What Are the First Steps to Take When Filing a Strategic Bankruptcy in GA?

If you are overwhelmed by debt, under constant harassment from creditors, and looking for a way out of a seemingly hopeless situation, the first thing you should do is consult with a trusted bankruptcy law office.

The experienced Georgia bankruptcy lawyers at Morgan & Morgan, Attorneys at Law, P.C. will review your case via a free consultation. They will determine if you are eligible for bankruptcy, advise you fairly and honestly, and help you navigate the complicated system in order to get your life back on track. Their attorneys have decades of experience that they will use to represent you with pride.

 

This article was originally published on September 29, 2015 and updated on July 27, 2021.