What is Chapter 7 bankruptcy?
Chapter 7 is beneficial for individuals who do not have valuable assets and who do not have high household income. If a debtor owns a home and there is not much equity in the home, they may keep the home, subject to making timely mortgage payments. Similarly, a debtor may own a vehicle with little equity or value in it, such as a leased, financed or older model vehicle and keep it, subject to payments being made on the secured debt. If assets are owned that exceed the amounts, in various categories of assets, that a debtor is allowed to keep, then the Chapter 7 trustee liquidates the assets and distributes the proceeds to the debtor's creditors. The person is then discharged from all debts.
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Will all my debts be discharged?
A debtor cannot discharge certain debts, including most taxes, student loans, alimony and child support, debts incurred through fraud or theft, and certain other types of non-dischargeable debt.
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Will I be able to retain any of my property?
In Georgia, each debtor can retain:
- $10,000 in real estate equity of your principal residence – the amount of property value in excess of mortgages and liens on the real property;
- Social Security benefits, unemployment compensation, veteran benefits, disability benefits and alimony;
- The debtor’s interest in funds held under certain retirement or pension plan systems and payments from those plans needed for the support of the debtor and the debtor’s dependents;
- $3,500 in equity in vehicles;
- $300 in each of various items of household furnishings and wearing apparel, up to a total value of $5,000;
- $500 in jewelry;
- $1,500 in professional implements, books and tools of the trade; and
- $600, plus the unused portion of $5,000 of the principal residence exception as a wildcard. A wildcard may be used for any asset that is not in an exemption category or to excess asset values in an exemption category
There are other less common exemption rights as well.
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How often can I file Chapter 7?
A debtor can receive a discharge from his or her debts only once every eight years.
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How do I benefit from a Chapter 7 case?
Once you file your case, your creditors are prohibited from continuing suits against you or from attempting to collect their claims against you and your property. Rather, creditors must look solely to the Bankruptcy Court and the assets within its control for payment of their claims. By filing the Chapter 7 case and obtaining a discharge, you receive a total forgiveness of the discharged debts and receive a "fresh start."
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What are the differences between Chapters 7 and 13?
In Chapter 7 if the debtor does not have assets that exceed what they are allowed to keep and they do not have excess income, then the Chapter 7 debtor is promptly discharged from all or most pre-bankruptcy debts and receives a fresh start. The proceeding lasts about 4 months in many cases. No payments or distributions are made to creditors.
If debtors have excess household income and have the means to pay back some of the debt, then Chapter 7 may not be appropriate and may be considered abusive. A means test is used to project future income of the debtor by considering the past 6 months of income. Projected expenses are considered based on national, state and local standards of living, household size, secured debt obligations, healthcare expenses, support payments, childcare and many other factors. If the means test and current circumstances which may be considered in addition to the means test results in a conclusion that filing Chapter 7 would be abusive, then the debtor may file a Chapter 13.
Chapter 13 is entitled "Adjustment of Debts of Individuals with Regular Income." Chapter 13 debtors pay all or part of their debts through future income rather than through the sale of present assets. Corporations and partnerships are not eligible for Chapter 13. The Chapter 13 debtor's income must be regular, but can come from self-employment, pension, welfare or alimony.
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What is bankruptcy?
Bankruptcy is a law that helps people whose debt has become overwhelming. The law helps manage the debt by requiring all creditor information to be gathered in one proceeding where creditors are notified. The debtor is expected to make a complete financial disclosure of all assets and debts, income and expenses and to answer questions about their financial affairs. The court appoints a trustee to administer the case. If you are having problems paying bills or are being threatened by creditors with lawsuits, wage garnishment or bank garnishment, bankruptcy may offer a solution.
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How do I obtain relief from my creditors?
For certain people, filing a bankruptcy case will achieve the relief from debt that they seek because a bankruptcy can result in the grant of a discharge of debts to an individual. A discharge is the forgiveness of personal liability for debts which have been incurred prior to the filing of the case. With few exceptions, creditors are prohibited from suing a debtor, obtaining a judgment or collecting on debts which have been discharged.
Bankruptcy, while it may relieve a personal obligation to repay a debt, does not eliminate most mortgages or liens on property. In order to retain a car or a house which has been pledged as collateral on a loan, a debtor will ordinarily have to continue paying the debt.
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What are my alternatives?
Non-bankruptcy alternatives include debt settlement, but credit may not be restored and often the client does not have sufficient assets or income to satisfy a debt settlement. To avoid lawsuits, judgments, wage garnishment and bank account garnishment, individuals may choose several different types of bankruptcy. The choice of a particular chapter will depend upon the financial circumstances of the debtor, household income, the amount and nature of the debt and the types of assets owned by the debtor.
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