Bankruptcy Frequently Asked Questions

The following information is a list of Frequently Asked Questions concerning bankruptcy in Georgia. Click on any of the questions to navigate to a more detailed explanation on the topic


General Bankruptcy FAQs

 

What is bankruptcy?

Bankruptcy is a legally declared inability of a debtor to pay his or her creditors. It is a legal option designed to alleviate financial crisis. Bankruptcies can usually be described as “reorganizations,” or “eliminations” of debt depending on which chapter you file. One of the main purposes of bankruptcy legislation is to afford the opportunity to a person, who is hopelessly burdened with debt, to free him or herself of the debt and start fresh and therefore obtain “a new lease on life.” One of the main aims of the United States bankruptcy law is to give a fresh start to honest debtors. To quote the United States Supreme Court, “It gives to the honest but unfortunate debtor … a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.”

Will my creditors stop harassing me?

Yes, they will. By law – all actions against a debtor must cease once the documents are filed. Creditors cannot initiate or continue any lawsuits, wage garnishees, or even make telephone calls demanding payments. However, secured creditors such as banks holding a lien on a car or a mortgage on a home may try to get the stay lifted if you cannot make payments.

Will my spouse be affected by my filing bankruptcy?

Your wife or husband will not be affected by your bankruptcy if they are not responsible (did not sign an agreement or contract) for any of your debt. If you are co-borrower on any of your spouses’ debts, your spouse should continue to make payments on the debt unless they are also filing with you in a joint (Husband and Wife) case.

Can I file bankruptcy with my spouse?

Yes. Spouses can file together. These are called joint cases. Also, you can file alone. Your spouse is not required to file with you.

How does bankruptcy help?

From an individual debtor’s standpoint, one of the primary goals of filing a bankruptcy case is to obtain relief from burdensome debt. Relief is attained through the bankruptcy discharge, the purpose of which is to provide a “fresh start” to the honest debtor.

Who will know that I filed bankruptcy?

Bankruptcy filings are public records. However, under normal circumstances, no one other than your creditors and people working on your case will know you if you have ever filed for bankruptcy.

Will I ever get credit again?

One of the fastest and surest ways to improve a credit score is to file a bankruptcy. Continuing to be responsible for debts you cannot pay will only continue to hurt your credit score. In general, the sooner someone files a bankruptcy case, the sooner they can begin to repair their credit rating.

One year after a bankruptcy discharge, debtors are eligible for automobile loans on terms as good as those of others, with the same financial profile, as those who have not filed bankruptcy. The size of your down payment and the stability of your income will be much more important than the fact you filed bankruptcy in the past.

Two years after a bankruptcy discharge, debtors are eligible for mortgage loans on terms as good as those of others, with the same financial profile, as those who have not filed bankruptcy. The size of your down payment and the stability of your income will be much more important than the fact you filed bankruptcy in the past.

The fact you filed bankruptcy becomes less significant the further in the past the bankruptcy is. The truth is that most banks will probably consider you a better credit risk after bankruptcy than before.

 

What is a discharge in bankruptcy?

Under the federal bankruptcy statute, a discharge is a release of the debtor from personal liability for certain specified types of debts. In other words, the debtor is no longer required by law to pay any debts that are discharged. The discharge operates as a permanent order directed to the creditors of the debtor that they refrain from taking any form of collection action on discharged debts, including legal action and communications with the debtor, such as telephone calls, letters, and personal contacts. The experienced attorneys in our office can explain specifically which debts are dischargeable in a free consultation.

Although a debtor is relieved of personal liability for all debts that are discharged, a valid lien (i.e., a charge upon specific property to secure payment of a debt) that has not been avoided (i.e., made unenforceable) in the bankruptcy case will remain after the bankruptcy case. Therefore, a secured creditor may enforce the lien to recover the property secured by the lien. For more information about the process of avoiding a lien, please contact our capable attorneys for a free consultation.

When does this bankruptcy discharge occur?

The timing of the discharge varies, depending on the chapter under which the case is filed. In a Chapter 7 (liquidation) case, for example, the court usually grants the discharge promptly on expiration of the time fixed for filing a complaint objecting to discharge and the time fixed for filing a motion to dismiss the case for substantial abuse which is sixty (60) days following the first date set for the 341 meeting of creditors. Typically, this occurs about four (4) months after the date the debtor files the petition with the clerk of the bankruptcy court. In a Chapter 13 (adjustment of debts of an individual with regular income) the court grants the discharge as soon as practicable after the debtor completes all payments under the plan.

 

Will filing bankruptcy affect my job?

A governmental unit or private employer may not discriminate against a person solely because the person was a debtor, was insolvent before or during the case, or has not paid a debt that was discharged in the case. The law provides express prohibitions against discriminatory treatment of debtors by both governmental units and private employers. A governmental unit or private employer may not discriminate against a person solely because the person was a debtor, was insolvent before or during the case, or has not paid a debt that was discharged in the case. The law prohibits the following forms of governmental discrimination: terminating an employee; discriminating with respect to hiring; or denying, revoking, suspending, or declining to renew a license, franchise, or similar privilege. A private employer may not discriminate with respect to employment if the discrimination is based solely upon the bankruptcy filing.

 

What is the bankruptcy automatic stay?

The bankruptcy automatic stay is a bankruptcy court order that prohibits any creditor from collecting debt from a person who has declared bankruptcy. The filing of a petition under Chapter 7 or Chapter 13 “automatically stays” most actions against the debtor or the debtor’s property. This stay arises by operation of law immediately when a bankruptcy case is filed. The bankruptcy automatic stay does not require judicial action or court hearing. As long as the bankruptcy stay is in effect, creditors generally cannot initiate or continue any lawsuits, wage garnishments, or even telephone calls demanding payments. Creditors normally receive notice of the filing of the petition from the clerk.

Will filing bankruptcy protect my property?

The automatic stay stops and prevents foreclosure, repossession, garnishments, collection calls, etc. Upon notice of the Chapter 7 or Chapter 13 case, creditors must cease attempting to collect from the debtor or the debtor’s property until further order from the bankruptcy court.

What is the 341 meeting of creditors?

The 341 meeting of creditors is a required administrative hearing which allows the Chapter 13 or Chapter 7 trustee to ask you questions regarding your debts, assets, and finances.

 

Who can I include in my bankruptcy?

You should list anybody and everybody that you might owe money or who might assert a claim of any kind against you. This includes, but is not limited to: lawsuits, personal guarantees, taxes, child support, student loans, personal loans, business contracts, credit cards, medical bills, utilities, mortgages, car loans, finance companies, credit unions, and anyone who may want to sue you. They might not all be treated the same in your case, and some might not be discharged, but every one of your creditors should be listed.

I have filed bankruptcy before. When can I file again?

A person can file Chapter 7 again if it has been more than eight (8) years since he or she was discharged from the previous Chapter 7 bankruptcy. However, a Chapter 13 case can be filed if it has been more than four (4) years since a Chapter 7 discharge. The rules for filing successive cases are complex. We can explain the rules in a free consultation at a time that is convenient for you.

 

Do I have to use a lawyer to file bankruptcy?

No. You do not need to use a lawyer to file Chapter 7 yourself or Chapter 13. However, we advise that you use the services of an experienced bankruptcy attorney because bankruptcy is a highly complex area of the law. A bankruptcy petition, the forms filed with the Court, are very complex and the discharge in a filing can be denied or severely delayed by errors in the forms filed. Several clients have come to us after the Court has rejected their petition for bankruptcy and they have been advised to seek legal assistance. Retaining a competent and experienced bankruptcy lawyer is well worth the cost; mistakes in a bankruptcy petition can be costly in time and money. You will save the cost of an attorney’s legal fees many times over through peace of mind, release of stress and probably actual money saved in following your bankruptcy attorney’s advice.


What is the Income Means Test?

When Congress amended the Bankruptcy Code in 2005, it added a “means test” as a way to objectively measure which individuals are abusing the privilege of filing for relief in Chapter 7 bankruptcy. If an individual cannot pass a means text, a Chapter 13 case will usually have to be filed rather than a Chapter 7 case. The means test applies to individuals with primarily consumer debts. The test is administered with a review of the debtor’s average income over the preceding six months in order to determine the approximate average monthly income. If your business or non-consumer debt is greater than your personal debts, a means test may not be required in your personal case. This can be a great help to individuals that otherwise not qualify for a Chapter 7 case using the means test. Non-consumer debt can also include some types of judgments, investments and tax related debt.

What can I keep if I file bankruptcy?

You are allowed to keep certain assets, depending on the Georgia and Federal exemption law. In general, a debtor may claim exemption of his homestead and nonexempt personal property from attachment or execution of a judgment, or in a bankruptcy proceeding. Most cases filed in bankruptcy are no-asset cases, meaning that there are no assets that are available for the creditors.

A debtor generally is entitled to exemption from levy and sale by virtue of any legal process any real or personal property, or both, in the amount of Five Thousand Dollars ($5,000). (O.C.G.A. Section 44-13-1) If a debtor refuses to apply for exemption under this provision, his spouse, qualified representatives of his minor children or dependents, may make such application and the exemption is binding upon the debtor. (O.C.G.A. Section 44-13-2)

For the purposes of bankruptcy, a debtor may elect, in lieu of the exemption provided under O.C.G.A. Section 44-13-1, the exemption provided under Section 44-13-100 of the Official Code of Georgia. Some of the property which may be exempted include:

• The personal and real property used by a debtor or his dependents as a residence or a burial plot, in the aggregate value of Twenty One Thousand Five Hundred Dollars ($21,500). A married couple filing can double this exemption. This exemption refers to and is used to protect the actual equity of a residence and not it’s actual value. For example, if you owe more money on a home than it is actually worth, then there is no equity in the home that would need to be exempted;

• Social security benefits;

• Unemployment compensation;

• Local public assistance;

• Veteran’s benefits;

• Disability benefits;

• Alimony;

• Support or separate maintenance to the extent reasonably necessary for the support of the debtor and his or her dependents;

• Pension payments;

• Undistributed interest in a retirement plans(s) or pension plan(s); including a IRA, 401k or other qualified retirement plan;

• Automobiles in the aggregate value of Five Thousand Dollars ($5,000). This exemption refers to and is used to protect the actual equity of an automobile and not it’s actual value. For example, if you owe more money on an automobile than it is actually worth, then there is no equity in the automobile that would need to be exempted;

• Household furnishings and goods, wearing apparel, appliances, books, animals, crops, or musical instruments that are primarily for personal family or household use not to exceed Three Hundred Dollars ($300) in value in each item and not to exceed Five Thousand Dollars ($5,000) in a total aggregate value. A married couple filing can double this exemption;

• Jewelry in the aggregate value of Five Hundred Dollars ($500);

• The debtor’s aggregate interest, not to exceed Six Hundred Dollars ($600) in value plus any unused amount of the homestead exemption in any property, to a maximum of Five Thousand Six Hundred Dollars ($5,600). A married couple filing can double this exemption;

• Professional books or tools of the trade in the aggregate value of One Thousand Five Hundred Dollars ($1,500);

• Unmatured life insurance contract;

• The debtor’s aggregate interest in the loan value on any unmatured insurance contract not to exceed Two Thousand Dollars ($2,000);

• Professional health aids;

• An award under a crime victim’s reparation law;

• Payment of not more than Ten Thousand Dollars ($10,000) from the recovery for personal injuries excluding pain and suffering or compensation for actual pecuniary loss; and

• Payment for compensation for loss of future earnings to the extent reasonably necessary for the support of the debtor and his dependents.

What don’t I keep if I file bankruptcy?

In a bankruptcy, assets in excess of your allowed personal exemption, or non-exempt assets such as real estate, automobiles and boats may be liquidated by the trustee. However, most cases filed in bankruptcy are no-asset cases, meaning that there are no assets that are available for the creditors. You will want to discuss this with an attorney before filing.

What debts are not erased in a bankruptcy?

The following debts are not erased in both Chapter 7 and Chapter 13. If you file for Chapter 7, these will remain when your case is over. If you file for Chapter 13, these debts will have to be paid in full during your plan. If they are not, the balance will remain at the end of your case:

• Debts you forget to list in your bankruptcy papers, unless the creditor learns of your bankruptcy case;

• Child support and alimony;

• Debts for personal injury or death caused by your intoxicated driving;

• Student loans, unless it would be an undue hardship for you to repay; and

• Fines and penalties imposed for violating the law, such as traffic tickets and criminal restitution, and recent income tax debts and all other tax debts.

Tax issues are a complicated area of the bankruptcy law and an attorney should be consulted. You can usually discharge (wipe out) debts for federal income taxes in Chapter 7 bankruptcy only if all of these five conditions are met:

• The IRS has not recorded a tax lien against your property. If all other conditions are met, the taxes may be discharged, but even after your bankruptcy, the lien remains against all property you own, effectively giving the IRS a way to collect. However, if you do not own much property at the time the case is filed, this may not be a real issue after the case is discharged;

• You didn’t file a fraudulent return or try to evade paying taxes;

• The liability is for a tax return (not a Substitute or Return) actually filed at least two (2) years before you file for bankruptcy;

• The tax return was due at least three (3) years ago;

• The taxes were assessed (you received a notice of assessment of federal taxes from the IRS) at least Two Hundred Forty (240) days before you file for bankruptcy.

In addition, the following debts may be declared non-dischargeable by a bankruptcy Judge in Chapter 7 if the creditor challenges your request to discharge them. These debts may be discharged in Chapter 13. You can include them in your plan, and at the end of your case, the balance is wiped out:

• Debts you incurred on the basis of fraud, such as lying on a credit application;

• Credit purchases owed to a single creditor in the amount of Five Hundred ($500) or more for luxury goods or services made within sixty (60) days of filing;

• Loans or cash advances (per line of credit) in the amount of Seven Hundred Fifty Dollars ($750) or more taken within seventy (70) days of filing;

• Debts from willful or malicious injury to another person or another person’s property;

• Debts from embezzlement, larceny or breach of trust, and

• Debts you owe under a divorce decree or settlement unless after bankruptcy you would still not be able to afford to pay them or the benefit you’d receive by the discharge outweighs any detriment to your ex-spouse (who would have to pay them if you discharge them in bankruptcy).

 

 


Chapter 7 FAQs

 

What is Chapter 7?

Chapter 7 bankruptcy cases contemplate an orderly, court-supervised procedure by which a trustee collects the non-exempt assets of the debtor’s estate, reduces them to cash, and makes distributions to creditors, subject to the debtor’s right to retain certain exempt property and the rights of secured creditors. However, because there is usually little or no nonexempt property in most Chapter 7 cases, usually there is no actual liquidation of the debtor’s assets. These cases are called no-asset cases, meaning that there are no assets that are available for the creditors. A creditor holding an unsecured claim will get a distribution from the bankruptcy estate only if the case is an asset case and the creditor files a proof of claim with the bankruptcy court. In most Chapter 7 cases, the debtor receives a discharge that releases the debtor from personal liability for certain dischargeable debts. The debtor normally receives a discharge just a few months after the petition is filed.

Who can file for Chapter 7?

In order to qualify for relief under Chapter 7 of the Bankruptcy Code, the debtor must be an individual, a partnership, or a corporation. An individual cannot file under Chapter 7 or any other chapter, however, if during the preceding One Hundred Eighty (180) days a prior bankruptcy petition was dismissed due to the debtor’s willful failure to appear before the court or comply with orders of the court or the debtor voluntarily dismissed the previous case after creditors sought relief from the bankruptcy court to recover property upon which they hold liens.

 

What is a Chapter 7 trustee?

Upon the filing of the Chapter 7 petition, an impartial case trustee is appointed by the United States trustee to administer the case and liquidate the debtor’s nonexempt assets. The Chapter 7 trustee will preside over the 341 meeting of creditors and determine whether there are any nonexempt assets available to liquidate for the benefit of creditors.

What are the key or major events in the Chapter 7 bankruptcy process and when will the bankruptcy be over?

Day Number 1: The bankruptcy petition is filed with the Bankruptcy Court. There is an immediate stay so that most actions by creditor are prevented, wages cannot be garnisheed, and legal actions cannot be continued.

Around Day Number 14: Creditors have usually been advised by the clerk that a bankruptcy petition has been filed. Specifically, the Court will mail your creditors notice of your bankruptcy filing.

Around Day Number 30: The 341 meeting of creditors hearing is held at the Court. The debtor must attend this meeting. Creditors can attend but usually do not attend the meeting. If they do attend, they usually only have a few minutes to ask questions. Note: The typical 341 meeting lasts about 4 to 5 minutes, but you should plan on arriving at court at least thirty (30) minutes to an hour early to find your attorney and discuss your case.

The trustee assigned to the case presides. The meeting is either tape recorded or recorded by a court reporter. The trustee asks you questions under oath such as:

• Did you read the schedules before signing?

• Did you list all of your assets?

• Did you list all of your debts?

• Are the schedules accurate?

• Do you want to make any corrections to the schedules?

• Are your cars insured?

• Have you destroyed your credit cards?

• The trustee either orally, or by giving the debtor written information, will ensure that the debtor is aware of the effect on credit history; the effect of receiving a discharge; the effect of reaffirming a debt; and the ability to file a petition under a different chapter.

This list of questions above is far from exhaustive. The more complex your case is, the more questions a Trustee may want to ask. In addition, if your case involves a business, self employment income, and/or non-consumer debts you may be asked several questions that are very specific to your case. Furthermore, you may be asked to produce documents and records to help explain and verify the information on your bankruptcy petition.

Around Day Number 30 and afterwards: The trustee will sell any nonexempt assets available for the benefit of the creditors. However, because there is usually little or no nonexempt property in most Chapter 7 cases, usually there is no actual liquidation of the debtor’s assets. These cases are called no-asset cases, meaning that there are no assets that are available for the creditors.

The trustee has the authority to:

• pursue causes of action (lawsuits belonging to the debtor);

• set aside preferential transfers made to creditors within ninety (90) days before the petition;

• undo security interests and other pre-petition transfers of property that were not properly perfected.

Approximately Day Number 90 (after the 341 meeting): Usually, and if all goes well, the debtor is discharged and all debts (with some exceptions) are written off. Depending on the complexity of a case, a discharge may take longer than ninety (90) days.

 


Chapter 13 FAQs

What is Chapter 13?

Chapter 13 bankruptcy cases are designed for an individual debtor who has a regular source of income. Chapter 13 may be preferable to Chapter 7 because it enables the debtor to keep a valuable asset, such as a house with substantial equity, while still receiving bankruptcy protection. It is also favored because it allows the debtor to propose a “plan” to repay creditors over time – usually three to five years. At a confirmation hearing, the court either approves or disapproves the plan, depending on whether the plan meets the Bankruptcy Code’s requirements for confirmation.

Chapter 13 is very different from Chapter 7, since the Chapter 13 debtor usually remains in possession of the property of the estate and makes payments to creditors, through the trustee, based on the debtor’s anticipated income over the life of the plan. Unlike Chapter 7, the debtor does not receive an immediate discharge of debts. The debtor must complete the payments required under the plan before the discharge is received. The debtor is protected from lawsuits, garnishments, and other creditor action while the plan is in effect. The discharge is also considerably broader (i.e., more debts are eliminated) under Chapter 13 than the discharge under Chapter 7.

Who can file for Chapter 13?

Any individual, even if self-employed or operating an unincorporated business, is eligible for Chapter 13 relief as long as the individual’s unsecured debts are less than $336,900 and secured debts are less than $1,010,650. A corporation, limited liability company or partnership may not file a Chapter 13 bankruptcy case.

 

What is a Chapter 13 trustee?

Upon the filing of the Chapter 13 petition, an impartial case trustee is appointed by the United States trustee to monitor the case and administer the payments under the plan. An attorney from the Chapter 13 trustee’s office will preside over your meeting of creditors to insure that you are making the payments under your plan and that it meets the requirements of the law.

 

What is the Chapter 13 confirmation hearing?

The confirmation hearing in a Chapter 13 case is when the judge approves the proposed repayment plan. After the plan is confirmed, the trustee will begin making payments to the creditors who have filed claims in the case. The confirmation hearing usually takes place about a month after the meeting of creditors. Chapter 7 cases do not have confirmation hearings.

 

When can a Chapter 13 be used?

Individuals may file Chapter 13 bankruptcy petitions if they: Reside, have a domicile, a place of business, or property in the United States, or a municipality; have a source of regular income; and on the date the petition is filed owe less than $336,900 in unsecured debts and less than $1,010,650 in secured debts. The dollar values given here are the published 2010 amounts. They are regularly adjusted to keep up with the cost of living. Corporations, Limited Liability Companies and partnerships may not file a Chapter 13 bankruptcy petition.

If you filed a prior bankruptcy petition and the prior proceeding was dismissed within the last 180 days, you may not be able to file a second petition and should consult with an attorney and see 11 U.S.C. sec. 109(g).

 


BANKRUPTCY:

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