The global coronavirus pandemic and COVID-19, its disease, has presented the world with one its most significant challenges in decades, wreaking havoc on nearly every aspect of our lives. With most affected countries virtually on lockdown, it has taken a significant toll on the global economy. This economic disruption has cost millions their jobs, with the number job loss claims in the United States rising to the highest levels on record in recent weeks. Without jobs, bills can’t be paid. And when bills can’t be paid, aggressive collection efforts can ensue.
If you have lost your job or are otherwise suffering a severe economic setback due to the current crisis, you may want to consider filing for bankruptcy. Below, our Alpharetta bankruptcy attorneys will explain the ins and outs of bankruptcy. Please contact us if you would like more information.
What Is Bankruptcy?
Generally, bankruptcy is a legal proceeding in which a judge and a trustee take stock of the financial situations of individuals who can no longer pay their bills. Under some forms of bankruptcy, most of the debtor’s debts are discharged, while under others, the debtor’s debt is merely restructured into more manageable payments. In all cases, bankruptcy gives debtors a second chance. For most debtors, filing for bankruptcy allows the debtor to put the mistakes or bad luck of the past behind them and start fresh.
The Two Types of Bankruptcy
There are many types of bankruptcy, but the two types that are available to individuals are Chapter 7 bankruptcy and Chapter 13 bankruptcy, so named because of their locations within the U.S. Bankruptcy Code.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is the “liquidation” form of bankruptcy, as it discharges most of the debtor’s unsecured debts. When you file for Chapter 7 bankruptcy, the court will place an automatic stay on your debts. This stay stops the collection process, prohibiting creditors from garnishing your wages, foreclosing on your home, and shutting off your utilities, among other collections enforcement actions. The court will then take legal possession of your property and appoint a bankruptcy trustee to review your financial situation. At this point, the bankruptcy trustee will sell some of your property (known as “non-exempt”) property to raise money to pay your outstanding debts. Each state defines exempt and non-exempt property differently, but in Georgia, exempt property includes:
- Homestead (up to $21,500 per person and $43,000 for couples who file together)
- Motor vehicles (up to $5,000)
- Household goods (up to $5,000)
- Child support and alimony
- Public benefits (i.e. unemployment, social security disability, etc.)
- Wages (up to 75%)
- Tools of the debtor’s trade (up to $500)
- Wildcard (allows up to $10,000 in leftover equity that is unused from the homestead exemption to be transferred to another exemption)
Once your creditors are paid to the fullest extent possible from the proceeds of the sale of your non-exempt property, the court will discharge any remaining debts, with the exception of child support, spousal support, court fees, certain tax debts, and student loan debt.
To qualify to file for Chapter 7 bankruptcy, you must:
- Meet certain income requirements (your income over the previous six-month period is less than the median income for a household of the same size in your state)
- Not have filed for Chapter 7 bankruptcy in the last eight years
- Not have filed for Chapter 13 bankruptcy in the past six years
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is known as the “restructuring” form of bankruptcy, and is far less extensive than Chapter 7. With Chapter 13 bankruptcy, the debtor enters into an agreement with the bankruptcy court on a repayment plan (usually between three and five years), with certain debts that remain at the end of the repayment period being discharged. A key feature of Chapter 13 bankruptcy is that the debtor gets to keep his or her non-exempt property. Like Chapter 7 bankruptcy, Chapter 13 bankruptcy filers are also entitled to an automatic stay from the court to stop any pending collections enforcement actions.
Debts in Chapter 13 bankruptcy are repaid according to their priority:
- Secured debts: Debts that are backed by collateral, such as houses and cars. In most cases, you will continue to make payments on these debts, although the total amount of the debt for some secured debts may be reduced.
- Unsecured debts: Debts that are not backed by collateral, such as credit card debt, personal loans, utility bills, and medical bills. These forms of debt are paid on a pro rata share after the secured debts are paid, meaning that most debtors pay only a small amount of what they actually owe. The remainder of these debts may be discharged at the completion of the Chapter 13 repayment plan.
Debts such as child support and alimony, tax debt, and student loans must be paid in full and are not dischargeable.
To qualify to file for Chapter 13 bankruptcy, you must:
- Have a regular income (can be in the form of wages, commissions, pension payments, social security benefits, disability benefits, workers’ compensation benefits, or unemployment benefits)
- Have total secured debt of under $1,184,200
- Have total unsecured debts of under $394,725
- Be up-to-date with your tax filings and payments
Which Should You Choose?
While the prospect of having your debts discharged as much as possible may be alluring, Chapter 7 bankruptcy filings can seriously damage your credit and result in significant property loss. Chapter 13 bankruptcy is less extensive, but it requires you to have a regular income and make payments toward your debt — which you may be unable to do.If you are considering filing for bankruptcy, your best bet would be to contact our experienced Woodstock bankruptcy attorneys who can help you evaluate your options.
Contact Our Alpharetta Bankruptcy Attorneys for More Information. We Are Here to Help.
For more information about filing for bankruptcy in a time of crisis, please contact our Woodstock bankruptcy attorneys at Hait & Kuhn by using our online form or calling us at either of our metro Atlanta locations: Alpharetta (770-517-0045) or Woodstock (678-888-0198).