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Chapter 7 vs Chapter 13 in Georgia

Chapter 7 bankruptcy is often referred to as “liquidation” bankruptcy because it liquidates non-exempt assets to meet debt obligations. The remaining debt balance is discharged or forgiven. However, not everyone is eligible for a Chapter 7 bankruptcy. Chapter 7 filers must meet income requirements. A Chapter 7 trustee also analyzes the debtor’s (person filing for bankruptcy) property for potential sale at a bankruptcy auction. Sale proceeds go towards settling the debtor’s unsecured creditors. In assessing whether a chapter 7 bankruptcy in Georgia is right for you, you need to complete the Chapter 7 Means Test and understand that any assets that are not exempt under the bankruptcy rules are subject to liquidation.

Chapter 13 bankruptcy restructures your debts into a bankruptcy repayment plan. The IRS describes a Chapter 13 bankruptcy as a voluntary reorganization of debt for individuals. Instead of paying unsecured creditors (i.e. credit card debt, medical bills, and personal loans) the full balance owed on the account, you pay a small percentage of the debt. Once you complete your Chapter 13 plan, these debts are discharged or forgiven.

Chapter 13 in Georgia?

One of the most important things for a Chapter 13 bankruptcy is to understand your Chapter 13 plan payment. Basically, will you be able to afford a plan payment and will it provide you monthly financial relief? The Chapter 13 plan payment is based on your income and allowable expenses. It will take into consideration how much you owe creditors and whether or not you have assets that, if they were to be sold – hypothetically, the value must be paid to your creditors through the monthly plan payment.

If you qualify for a Chapter 7 but you are wanting to save your home or vehicle from being foreclosed or repossessed, then you fall under a 3 year commitment period. Otherwise, your Chapter 13 will be categorized as a 5 year commitment period. Other circumstances will determine how long you will pay into your Chapter 13; but the period cannot exceed 5 years.

Georgia Chapter 13 plan payments depend on several factors. For example,

  • Mortgage Arrearage — You must catch up on the balance of past due mortgage payments to keep your house in Chapter 13. In addition, you also must pay your normal mortgage payments outside of the plan.

  • Car Loans — You may have several options for paying a car loan. One such option includes lowering your car loan payments, assuming you meet requirements. Typically, most debtors pay their car loans in full through the Chapter 13 plan to save money.

  • Priority Unsecured Debts — These debts must be paid in full through your Chapter 13 plan. For example, they include back taxes, alimony, child support, most debts owed to the government, restitution, and administrative amounts (amount owed to the Chapter 13 trustee for administering the case).

Not all debts can be satisfied through bankruptcy. Priority unsecured debts that must be paid in full for both Chapter 13 or Chapter 7 include alimony, child support, and most taxes (less than 2 years old). You must also pay any back mortgage payments in full if you want to keep your home. However, a Chapter 13 plan allows you to repay these debts in full over three to five years. Bankruptcy also stops foreclosures, repossessions, wage garnishments, and debt-collection lawsuits.

Means Test

All income during the past six months is used to calculate your average monthly income (AMI). Income used for the Means Test includes, but is not limited to, income from wages, salaries, commissions, businesses, rentals, domestic support payments, interest, pensions, retirement income, and other earned income. Income outlined in the Social Security Act, however, is not included in the Means Test. Your average monthly income is multiplied by 12 to calculate your annual average median income. The Means Test compares your average median income to the average income for households of your size in Georgia.

Georgia Bankruptcy Exemptions

Bankruptcy exemptions protect the net equity in your property from being used to increase your Chapter 13 plan payment. Georgia has opted out of the federal bankruptcy exemptions. If you have resided in Georgia for at least 730 days before filing your Chapter 13 petition, you must use Georgia bankruptcy exemptions.

The exemptions cover a wide variety of property, including, but not limited to, homes, vehicles, clothing, personal property, business equipment, retirement accounts, and health aids. In addition, married couples who file Chapter 13 in Georgia can double the exemption amounts if both spouses own an interest in the property.

Debt Settlement

If you decide you do not want to file bankruptcy but still need help with your debt, contact us to discuss debt settlement options. It is better to reach out to settle your debt before the creditor obtains a judgment against you. They can then garnish your wages up to 25% of your net income. If you can acquire funds to pay a large lump some, its possible to cut the amount you owe in half, may be, depending on your circumstances and the creditor. If that is not an option, it is also possible to set up payments that you can afford; which always better than having your wages garnished. Contact us if you have questions about your financial concerns.