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 do creditors get?
A court-appointed trustee is required to sell non-exempt assets and distribute the proceeds to creditors according to the priorities established by the Bankruptcy Code. Frequently, creditors receive no distribution from a bankruptcy case because there are no asset values that exceed what a debtor is allowed to keep.
In some cases, a debtor is denied a discharge and continues to be obligated on all the debts if the debtor has engaged in some form of dishonesty related to the bankruptcy. Reasons for the denial of a discharge include court determinations that the debtor has concealed assets, has fraudulently transferred assets to avoid payment to creditors or has made a false statement under oath. Such acts may also be the subject of criminal proceedings.
In addition, some debts may not be discharged. These include obligations for alimony or child support, certain taxes and student loans, and debts incurred by false statements or representations. If the Bankruptcy Court determines that a particular debt was incurred through the debtor's fraud, that debt may be excepted from discharge.
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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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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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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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Can I keep my property?
Chapter 13 debtors usually keep their cars, house and other important property subject to security interests. Mortgage payments must be kept current but mortgage arrears may be paid back in the plan. Auto payments may be adjusted.
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How about paying taxes?
Filing bankruptcy under either Chapter 7 or Chapter 13 will stop all IRS or state tax collection activities on taxes accruing prior to filing bankruptcy. If a Chapter 7 is filed, these tax collection activities often resume shortly after filing because the tax obligation usually cannot be discharged in bankruptcy. Interest and penalties continue to accrue.
On the other hand, filing a Chapter 13 halts the accumulation of interest and penalties, and taxes may be paid over the life of the plan. The filing of bankruptcy does not stop the IRS or state from pursuing the collection and payment of taxes arising after the bankruptcy filing.
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What about non-dischargeable debts?
Most debts can be discharged under either Chapter 7 or Chapter 13. Some cannot be discharged under either chapter and some can only be discharged under Chapter 13. For example, debts involving fraud and embezzlement may be dischargeable through a Chapter 13 if the plan is confirmed. Debts arising from child support, alimony, student loans, criminal fines and criminal restitution debts are among those which cannot be discharged under either chapter.
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What is Chapter 12 bankruptcy?
Chapter 12 is designed to allow family farmers to retain their property and pay creditors over an extended period of time.
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What is Chapter 11?
Chapter 11 is a reorganization proceeding usually involving corporate debtors, but it is also available to individuals who have been engaged in a commercial enterprise and desire to stay in business, restructure existing debts and attempt to reorganize and retain assets under court supervision.
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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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