Chapter 7

Chapter 7 Bankruptcy

A Chapter 7 Bankruptcy is an effective way to eliminate credit card, medical and other debts which are generally described as “Unsecured.” However, not all debts are eliminated in a Chapter 7 Bankruptcy and there are several requirements which must be satisfied to qualify for a Chapter 7 Bankruptcy.
Unlike a Chapter 13 bankruptcy, a Chapter 7 Bankruptcy does not require any payment to a Trustee for the benefit of your Creditors. A properly filed Chapter 7 Bankruptcy petition can eliminate many of the following types of debts:

– Medical bills
– Personal loans
– Judgment debts
– Credit Card debts
– Prior Lease Obligations
– Garnishments

However, because a Chapter 7 Bankruptcy is so effective and does not require any payment, there are two obstacles which may prevent an individual from filing a Chapter 7 Bankruptcy: (1) Non-Exempt Assets and (2) Income Above the Median.

Non-Exempt Assets
Every state has laws which protect the assets that you own from creditors up to a certain dollar value. These protections are called “Exemptions” in Bankruptcy. So, for example, in Georgia, there are Exemptions which protect your car, house, furnishings, clothing, jewelry and fire arms. These Exemptions have limits and if you own an asset which exceeds the limit allowed by Georgia law, you could lose that asset or a portion of it in Bankruptcy.
However, very many people do not own assets with values that exceed these Exemptions and, as a result, they do not lose any assets in a Chapter 7 Bankruptcy. In order to keep all of your assets, it is important that you work with a knowledgeable Bankruptcy attorney who knows the applicable Exemptions for your case and can protect your assets in Bankruptcy.

Below is a list of the Exemptions available in Georgia and the dollar values which are exempted. It is important to remember that the values of your assets are reduced by any related debts such as a mortgage or car loan in determining the value or “equity” which you actually own. For example if you own a car worth $7,000 with a car loan of $4,000, you only own $3,000 worth of “equity” in the car. Georgia provides an individual automobile exemption of up to $5,000. Therefore, the $3,000 worth of “equity” in the car which you actually own is exempted in Bankruptcy in Georgia, putting it out of the reach of the Bankruptcy Trustee.

– Homestead – $21,500 of value in your residence
– Motor Vehicles – $5,000 of value in motor vehicles
– Jewelry – $500 of value
– Household goods and furnishings – $5,000 of value
– Tools of the Trade – $1,500 of value
– Wildcard – $1,200 of value plus up to $10,000 of unused portion of homestead exemption

Income Above the Median

The other obstacle which must be addressed in filing a Chapter 7 Bankruptcy is the “Means Test.” As part of the 2005 overhaul of the U.S. Bankruptcy laws, Congress implemented a “Means Test” with the apparent intent of preventing many individuals making “above average” incomes from filing a Chapter 7 Bankruptcy.

The first step in applying the “Means Test” is determining your income for the 6 months prior to your Bankruptcy. Almost all income received by an individual, except social security payments, is included as part of the “Means Test” calculation. Further, the income amounts are pre-tax. The “Means test” also takes into account your marital status and how many dependents live in the house with you.

By way of example, the Median Household Income in Georgia for a household of 2 people is $56,301 per year or about $4,692 per month. If your income exceeds that amount, you may not be eligible to file a Chapter 7 Bankruptcy. However, there may be additional deductions applicable in your case which would allow you to ultimately file a Chapter 7 Bankruptcy despite income in excess of the median income for your state. Again, it is very important that you consult with a Chapter 7 Bankruptcy attorney who is familiar with the Means Test so that you know all your options prior to filing bankruptcy.

The Median Annual Household Incomes applicable in the Savannah Area are as follows:

Household Size Annual Income Monthly Income
1 $43,274 $3,606
2 $56,301 $4,692
3 $62,483 $5,207
4 $73,202 $6,100
5 $81,602 $6,800
6 $90,002 $7,500

If you do not have assets in excess of the allowed exemptions and your income is below the median, you may find that Chapter 7 is the appropriate bankruptcy for you. After filing your case and the expiration of the legal deadlines, you will receive an order from the court informing you that your debts have been discharged.