Should you file Chapter 7 or 13?

Bankruptcy Chapter Overview

Bankruptcy is something that the average person may not understand and may have developed misconceptions about. There are several different bankruptcy chapters that can be utilized to file bankruptcy depending on which category the person or entity that is filing for bankruptcy protection (the “debtor”) choose to file under.  Before making a decision to file for bankruptcy in Georgia, it is highly recommended that you consult with a Georgia bankruptcy attorney.

Overview Chapter 7

Individuals who have very little assets will file for bankruptcy protection under Chapter 7. These individuals will receive the most benefit by filing under Chapter 7 because they can start over again debt free. The individual’s assets, excluding exempted assets, are liquidated and used to pay off creditors. Individual debtors may take advantage of certain Georgia bankruptcy exemptions in order to keep their home or personal items. They also have the choice to reaffirm secured debts such as a car loan or home mortgage loan if they want to keep such property. However, if the debtor defaults on their mortgage payment or car loan, the creditor could repossess the secured property.

In order to be able to file for Chapter 7, a person must pass the means test, which means that your annual income must fall below the median income in Georgia. To determine your income when it exceeds the median Georgia income, itemized expenses may also be deducted. A Georgia bankruptcy attorney can help you determine whether you meet the means test under Chapter 7. A business may also file under Chapter 7 if the business does not own many assets, has a lot of debt and desires to close their business.

Overview Chapter 13

Chapter 13 allows individuals that wish to retain their assets the opportunity to reorganize their debts and enter into a court-approved bankruptcy repayment plan over a period of three to five years with their creditors. Once the debtor completes the plan, the bankruptcy court will discharge the debtor’s remaining unsecured debts. Your Georgia bankruptcy attorney can assist you with negotiating with your creditors and help you to prepare a repayment plan.

Overview Chapter 11

Chapter 11 allows a business that desires to stay in business to keep its assets by reorganizing its debts similar to a Chapter 13. The business enters into a court-approved repayment plan for a period of three to five years, and the remaining unsecured debts are discharged by the bankruptcy court after the business completes the repayment plan.

Bankruptcy protects the debtor from creditors attempting to collect debts against the debtor. As soon as a debtor files for bankruptcy protection, creditors can no longer sue the debtor, file a foreclosure proceeding against a debtor’s property or try to repossess a debtor’s vehicle. After all the debtor’s unsecured debts have been discharged by the bankruptcy court, a creditor would be considered in contempt of court for pursuing collection of such discharged debt. However, a debtor is responsible for paying a creditor when the debtor reaffirms secured debt such as a mortgage on the debtor’s property or a loan on a vehicle owned by the debtor.  There are certain statutory debts that cannot be discharged in bankruptcy such as alimony, child support, federal taxes (unless they are more than three years old), student loans, court fees, costs or debts relating to fraud, embezzlement or personal injury negligence caused by the debtor to another party.

Since bankruptcy laws are complex, it is recommended that you consult with a Georgia bankruptcy attorney.   If you would like to discuss your bankruptcy options contact my office immediately.

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