Will I Have to Give Up my House, Car or Other Property if I File for Bankruptcy?
Generally, you will not be asked to surrender your house, car or other property when we file Chapter 7 or Chapter 13 bankruptcy. The bankruptcy law recognizes that bankruptcy filers should be able to protect some property, and my experience has been that most of the time, these “exemptions” will include your possessions. Most of my clients keep all of their property during and after their Chapter 7 or Chapter 13 filing.
Although your bankruptcy will be filed in federal court, the rules that cover what you can protect when you file are contained in Georgia law. The federal Bankruptcy Code specifically allows States to create their own exemption rules and Georgia has elected to do so. Georgia’s “exemption statute” may be found at O.C.G.A. 44-13-100, which you can read by clicking on the link.
Among the items that you can declare exempt in your bankruptcy include:
- up to $21,500 of equity in real estate
- up to $3,500 of equity in motor vehicles
- up to $5,000 of equity in household goods
- up to $500 of equity in jewelry
- up to $1,500 of equity in “tools of the trade”
- up to 100% of the value of a pension, 401(k) or IRA
- there are additional exemption categories set out in the statute
If you file a joint case with your spouse, each of you may claim exemptions and the amounts in the statute would be doubled.
How do Exemptions Work in Chapter 7?
Chapter 7 is the type of bankruptcy that wipes out debts. If you will be filing Chapter 7, we would identify and declare as exempt your property. If you own land or property that exceeds the exemption limits, then that property would be considered “non-exempt.” In a Chapter 7 you would either surrender your non-exempt property to the trustee, or, as is more common, we would make an offer to buy the trustee out of the estate’s interest in that property, so you can keep that property.
How do Exemptions Work in Chapter 13?
Chapter 13 is the type of bankruptcy that provides for a repayment plan. Under the law, you must pay your unsecured creditors in a Chapter 13 at least what they would receive if you turned over your non-exempt property to the trustee for sale. For example, if you owned a house worth $100,000 free and clear and you filed a Chapter 13 that included $15,000 of unsecured debt (credit cards), your Chapter 13 plan would have to pay your unsecured creditors 100 cents on the dollar since your unsecureds would be paid in full if you had filed Chapter 7. In this case, you can shelter $21,500 of your equity leaving $78,500 of equity as non-exempt, which is obviously enough to pay $15,000 of unsecured debt.
By contrast if you owned a house worth $100,000 and you owed $70,000, you would end up with $8,5,000 of non-exempt equity. $100,000 – $21,500 of exemption – $70,000 lien = $8,5,00 non-exempt. In this case, $5,000 equals roughly 57% of $15,000 unsecured, meaning that your Chapter 13 plan would have to pay unsecureds at least 57 cents on the dollar.
You can Always Voluntarily Surrender Property in Chapter 7 or Chapter 13
One of the lesser known benefits of bankruptcy has to do with your right to surrender property voluntarily with limited repercussion in either Chapter 7 or Chapter 13. In Chapter 7, you can elect to surrender property like a house or car and then just walk away – there will be no financial repercussions, tax obligations for canceled debt, or deficiency debt owed. In a Chapter 13, when you surrender secured property to creditors, that creditor can file an unsecured claim after the property is liquidated, but my experience has been that most of these creditors do not file unsecured claims.
Special Exemption Rules if You Have Lived in Georgia for Less that Two Years
If you have lived in Georgia for less than two years, there are some instances in which the Georgia exemption code will not apply to you. I ask about previous addresses on my bankruptcy intake questionnaire, but please also make sure to advise me if you have recently moved to Georgia from another State.
