What is Bankruptcy?

Individuals who are having problems paying their bills, or who are threatened by a creditor with a lawsuit, a garnishment or a seizure of property, often consider bankruptcy as a solution to their problems.  The bankruptcy law is a federal law, which is available to individuals throughout the United States.  Bankruptcy Courts are federal courts.

What is a Chapter 7 Bankruptcy Case?

Chapter 7 is what most people refer to as “straight bankruptcy”.  In a Chapter 7, the debtor turns over all of his or her assets to a Chapter 7 trustee.  The Chapter 7 trustee liquidates the assets and distributes the proceeds to the debtor’s creditors.  By order of the Bankruptcy Court, the person is then discharged from all debts.

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 debts.

Will I be able to retain any of my property?

In Georgia each debtor can retain:

1. $10,000 in real estate equity of your principal residence (the amount of property value in excess of liens on the real property)

2. Social Security benefits, unemployment compensation, veteran benefits, disability benefits, and alimony;

3. $3,500 in equity in vehicles;

4. Various items of household furnishings and wearing apparel, up to a total value of $5,000;

5. $500 in jewelry;

6. $1,500 in professional implements, books and tools of the trade; and

7. $600, plus the unused portion of the principal residence exception as a wildcard.

There is other less common exemption rights.  In addition, if the creditor holding a lien on a particular item of property consents, and the Bankruptcy Court finds that is in your best interest, you can retain additional property by reaffirming the debt to the creditor and paying the creditors claim pursuant to which you had previously agreed.

How often can I file a Chapter 7 Bankruptcy case?

A debtor can receive a discharge from his or her debts on once every 6 years.

How do I benefit from a Chapter 7 case?

By filing the 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”.

What are the differences between Chapter 7 and Chapter 13?

Chapter 7 of the Bankruptcy Code is entitled to Liquidation and as the name implied, generally requires the sale or foreclosure of all property except property deemed to be exempt.  In most instances, the Chapter 7 debtor is promptly discharged from all or most pre-bankruptcy debts and receives a fresh start on a new economic life.  This new economic life frequently begins with only exempt assets.

Chapter 13 is entitled “Adjustment of Debts of Individuals with Regular Income” It is often called “wage earner” or just “Chapter 13”.  Chapter 13 debtors pay all or part of their debts through future income rather that through liquidation or foreclosure of present assets.  Chapter 13 is available only to individuals with regular income whose non-contingent; liquidated unsecured debts are less than $250,000 and whose secured debtors are less that $750,000.  Corporations and partnerships are not eligible for Chapter 13.  The Chapter debtor’s income must be regular but can come from such things as self-employment, pension, welfare or alimony.

How does Chapter 13 work?

Under Chapter 13, the debtor presents a plan of debt repayment, which is reviewed by the Chapter 13 trustee, creditors and the Bankruptcy Court.  The plan must be filed in good faith, must provide for payments there are feasible in light of the debtors income and expenses and must also provide for payments over time that are equal in value to the money creditors would have received of the debtor had chosen Chapter 7 liquidation instead of Chapter 13.  If a proper objection is made to the plan to the plan, then the plan must also provide that, for a period of three years, all of the debtor’s income above reasonable expenses will be used to pay debts.

If the Chapter 13 plan is approved, all payments are made through the Chapter 13 trustee’s office, and the trustee is paid a commission.  Most plans must run at least three years and cannot exceed five years.  Chapter 13 provides that the debtor receives a discharge from most pre-bankruptcy debt upon making the payments called for by the plan.

What are the disadvantages of Chapter 13?

Debtors remain under court supervision for the life of the plan, up to five years.  They are not free to make new debts or sell assets without permission.  Debtors who propose less than full payment of their unsecured creditors will be required to live on a budget for the life of the plan.  The plan payments may be deducted directly from the debtor’s salary by order of the court.  If plan payments are not made, the case may be dismissed by the court on the motion of the trustee or and creditor may petition the court to have their property returned.  Some courts require that you surrender recently purchased property or luxury items before they will confirm a Chapter 13 plan.  Chapter 13 is a form of bankruptcy and will appear as such on your credit report if you pay all your creditors in full.