Typically, people lose nothing if they declare bankruptcy. Most states, including Georgia, have very broad bankruptcy property exemptions. The trustee (person who manages a bankruptcy for a judge) cannot liquidate exempt property to pay debts. Creditors cannot touch this property either, even if a security agreement is involved. Additionally, there are a number of informal property exemptions that could apply to more assets.
So, the fear of losing property should not prevent people from claiming the benefits of bankruptcy. The Automatic Stay immediately stops foreclosure, wage garnishment, repossession, and most other adverse creditor actions. Additionally, bankruptcy discharges most unsecured debts, such as credit cards and medical bills.
There are two types of consumer bankruptcy. Chapter 7 eliminated debts and gives debtors fresh starts in as little as nine months. Chapter 13 gives families up to sixty months to take care of secured debt delinquency, like past-due mortgage payments.
Obviously, a bankruptcy case has a lot of moving parts. There are a lot of hoops to jump through, and a breakdown in any area could prompt the judge to dismiss your case. An Athens bankruptcy lawyer helps eliminate these potential problems and maximize your fresh start.
Determining an Asset’s Value
As outlined below, most of the formal bankruptcy exemptions in most states are value-based. In other words, the asset’s value largely determines is exemption status, if any.
The Bankruptcy Code requires debtors to use an asset’s as-is cash value when they file for relief. The as-is cash value is often only a fraction of an item’s fair market value. Timmy might have paid $3,000 for an expensive television set a year or two ago. But that TV set might only fetch $300, or even less, at a garage sale.
Accuratelt using the as-is cash value, as opposed to the fair market value, is just one way an Athens bankruptcy lawyer maximizes exemptions and protects more of your property.
All state laws include property exemptions. Georgia’s bankruptcy exemptions, which are mostly listed in Section 44-13-100(a) of the Georgia Code, are fairly typical. The exemptions in the Peachtree State apply to:
- Homestead: Married filers may protect up to $43,000 in home equity. So, if your equity is under this ceiling, neither the trustee nor the mortgage lender can touch your home, at least in most cases. As a rule of thumb, unless you have made more than half the loan payments, you probably have very little equity in your home. Early in the loan term, the bank applies almost all payments to interest as opposed to principal.
- Motor Vehicle: These same basic principles apply to the $5,000 motor vehicle equity exemption. Most owners have practically no equity in new vehicles. Used vehicles might have substantial equity, but practically no financial value.
- Personal Property: As outlined above, this $25,000 exemption is usually more than enough to protect most or all jewelry, clothes, appliances, electronics, and other personal property. These items usually have essentially no as-is cash value, even if they are practically new.
- Retirement Account: Now, we get to the exemptions which are not value-based. The Supreme Court has repeatedly affirmed that an IRA, 401(k), or pother nest egg retirement account is 100 percent exempt, regardless of its value.
- Private and Public Benefits: For the most part, no dollar limit applies here either. Private benefits usually include alimony, child support, and other DSOs (Domestic Support Obligations). Public benefits, such as Social Security benefits, are likewise 100 percent exempt.
- Wildcard Exemption: Debtors may apply Georgia’s $1,200 wildcard exemption to real or personal property which is otherwise nonexempt. Some states restrict the wildcard exemption to personal property, including cash. Debtors may also apply up to $10,000 of the homestead exemption to otherwise nonexempt property.
Cash, like tax refund money in a checking account, and luxury items, like lake houses, are about the only things the formal exemptions do not protect. However, as outlined below, these items are normally safe in a consumer bankruptcy.
The mootness doctrine often applies to cash in a bank account. Assume Bill has $1,500 in his checking account when he files bankruptcy. The trustee claims that money is nonexempt and therefore subject to liquidation. By the time the hearing date rolls around, Bill has spent that $1,500 on living expenses. Since the money is gone, it doesn’t matter who owned it. Therefore, the judge has no jurisdiction over this matter.
The best interests of creditors rule often applies to luxury items. Assume Ted owns a jet ski which is worth about $750. Sales costs, which the creditors must pay, would also be about $750. The jet ski needs some minor repairs. There are other costs, such as storage expenses and auction fees, to pay as well.
Legally, the trustee cannot touch Ted’s jet ski under these facts. Since the creditors would make little or no money from a sale, liquidation would not be in their best financial interests.
About the Author
Lee Paulk Morgan is a principal attorney in Morgan & Morgan, Attorneys at Law, P.C. He is an active member of several state and national bar associations. In addition to consumer bankruptcy, Lee focuses on workers’ compensation and disability. Click here to learn more.
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