You owe more than you earn and you can’t see any way that you’re going to be able to pay your debts. You are overwhelmed by the financial situation you find yourself in but don’t know what to do about it. Essentially you know you’re “bankrupt,” but should you file for bankruptcy or is there another solution you can consider?
While filing for bankruptcy might be the best solution to stop creditor collection actions and wipe out your debt, if you want a fresh start to your new year, first learn more about your bankruptcy options.
What Are Your Bankruptcy Options?
In Georgia bankruptcy is governed largely by federal laws, but there are also specific Georgia bankruptcy exemptions that come into play.
There are three district bankruptcy courts in the state – the Northern District, Middle District, and Southern District courts – and, like elsewhere in the US, two different types of bankruptcy for individuals (including independent contractors and sole proprietors), Chapter 7 and Chapter 13. While both may be used to stop bank account levies, wage garnishments and other creditor collection actions:
- Chapter 7 bankruptcy is the most popular type, because it generally enables debtors to get rid of all unsecured debs without losing their homes, cars and other items considered to be essential for living. It is also quick, taking just a few months to completion, but may only be used once every seven years.
- Chapter 13 bankruptcy aims to stop foreclosures, to reinstate mortgages, and remove junior mortgages, and discharge some of the debt. A portion though must be paid back over a three to five year period of time. Because of this, Chapter 13 takes three to five years and is commonly used by people who have fallen behind on secured debt payments like mortgages. It is also more costly.
In 2005 when the new bankruptcy law came into effect, a means test was introduced to determine which type of bankruptcy people qualified for. It involves a mathematical formula that looks at monthly income, debt types and amounts, as well as other elements relating to each person’s financial circumstances.
In Georgia there are median incomes for different household sizes. If a person’s annual income is less than this, they can file for either type of bankruptcy, providing the other qualifications are met. If annual income is higher, disposable income is determined by deducting expenses. If income is still too high, the only option is Chapter 13, because there is clearly money available for repayments.
In some instances people are not eligible to file.
Before anyone can file for Chapter 7 bankruptcy it is mandatory to complete two hours of credit counseling. Once this has been done, the debtor gets an automatic stay that enables them to stop creditors from attempting to collect debts. Wage garnishment, vehicle repossession, and home foreclosures are also halted. The only exceptions are child support and alimony debts, some IRS enforcement actions, and most student laws. These are known as non-dischargeable debts and no form of bankruptcy will get rid of them.
Credit counseling is also required for Chapter 13.
Georgia’s Exemption Laws
Anything that is exempt in terms of the exemption laws of Georgia is “safe” – unless it has been pledged as collateral. A typical example is property that was used to secure a loan to buy a car.
The most important Georgia exemptions will cover your home and car:
- The Homestead Exemption is automatic and enables homeowners to exempt a small portion of equity (up to $21,500) in their homes. A further $5,000 wildcard exemption may also be applied to the homestead exemption. If the homeowner files for bankruptcy, the equity will be exempt and creditors won’t be able to touch it.
- The Motor Vehicle Exemption is up to $5,000. If this is more than is owing, then the trustee handling the bankruptcy cannot sell the car. The lender may though repossess the car either before or after bankruptcy.
- Other bankruptcy exemptions include:
- $500 of the value of jewelry owned,
- $7,500 to compensate for future earnings required for support,
- $10,000 of personal injury recoveries.
Certain public benefits including worker’s compensation and veteran’s benefits are also exempt.
All these factors need to be considered before you decide whether filing for bankruptcy is really going to help you start the new year afresh.