Bankruptcy is a great tool for those struggling with large amounts of debt or facing imminent collection action. It is very affordable and can take care of multiple financial issues at one time. Individuals often file bankruptcy for various reasons. The most common reasons people file bankruptcy in Atlanta, Georgia is due to Medical Bills, Personal Injury, Joss Loss, Loss of Income, Small Business Loans, and Credit Card Debt. Bankruptcy is an excellent tool because it can IMMEDIATELY stops the following collection action:
- IRS Bank and Wage Levies
- Judgment Creditor Bank Levies
- Judgment Credit Wage Garnsihments
The goal of bankruptcy is to provide the honest but unfortunate debtor a fresh start. A bankruptcy case commences with the filing of the petition and in most cases is filed voluntarily by debtor.
There are six different chapters of bankruptcy; however, the most common chapters are the following:
- Chapter 7
- Chapter 13
- Chapter 11
A Chapter 7 Bankruptcy is a liquidation bankruptcy that allows most individuals to complete get rid of their unsecured debt such as credit card debt, medical bills, old utility bills, and old apartment leases. A debtor can keep a home or car in a Chapter 7 but they must be and remain current on their monthly payments. To qualify for a Chapter 7, the debtor must have not filed Chapter 7 bankruptcy less than eight years ago and meet an income test called “the means test.” The means test uses the median income for your household size and expenses based on the IRS standards of living. Even if you are over the means test, some individuals still may be able to qualify for a Chapter 7 in Georgia because the means test allows for necessary expenses such as mortgage payments, medical bills, childcare, health insurance, taxes, and other allowed expenses. If more than 50% of the total debt is not-consumer debt or business debt, the debtor can avoid the means test entirely and file a Chapter 7 under the Business Debt Exception. Non-consumer debt includes taxes and essentially any debt that was NOT used to pay a personal, family, or household expense. Since taxes are considered a non-consumer debt, a Chapter 7 is a great option for anyone that has dischargeable tax debt and their tax debt is more than 50% of their total debt.
In a Chapter 7, the trustee takes control over debtor’s assets and sells any unexempt property to pay back creditors. Most debtors do not have any assets of value or nonexempt assets to be liquidated. This is due to the fact that the bankruptcy code allows exemptions on real and personal property so that the debtor will have something when they exit bankruptcy. Although bankruptcy is federal law, each state may choose to use its own exemptions. In Georgia, a debtor can exempt up to $21,500.00 in real estate under the homestead exemption and $5,000.00 in a vehicle, in addition to many other exemptions provided by O.C.G.A. 44-13-100. A full listed of exemptions can be found here. In most cases, the debt will be discharged and the debtor is released from all personal liability, i.e. will not have to pay any amount back to creditors. However, some debts are not-dischargeable and may remain after the bankruptcy case.
A Chapter 13 is a debt reorganization for individuals with a regular steady source of income. Although there is no test for a Chapter 13, there are limits on the amount of debt that can be handled in a Chapter 13 case. The unsecured debt limit is $394,725.00 and secured debt limit is $1,184,200.00 (valid through 2019). Thus, if a debtor is looking to file a Chapter 13 and their debt exceeds these limits, they will be ineligible. The Chapter 13 plan allows the debtor to pay back creditors over a three to five year period. A Chapter 13 is used in cases where the debtor does not qualify for a Chapter 7 because their income exceeds the means test or they have property with equity that they would like to keep such as a house or a car.
A Chapter 11 is a reorganization typically used by companies to continue operating a business and repay creditors through a court approved plan. However, a Chapter 11 can also be filed by high net worth individuals who do not qualify for a Chapter 7 or over the Chapter 13 debt limit.
Each chapter of bankruptcy has pros and cons and not all debts are dischargeable. In addition, some tax and/or tax liens may remain after your bankruptcy case. Due to the very complex nature of tax and the requirements for tax dischargeability in bankruptcy, many bankruptcy attorneys are not able to provide their clients a comprehensive analysis of their debt and how it will be treated in bankruptcy. Our firm is able to give clients a complete analysis and post bankruptcy options for any debt that may survive the bankruptcy.
If you would like more information please contact us today at (404) 551-5838 for a free one hour consultation with Alyssa Maloof Whatley, Atlanta Tax and Bankruptcy Attorney.