The federal bankruptcy law allows individuals to file four different types of bankruptcy. Each type is described in a different chapter of the Bankruptcy Code, thus, you will hear people refer to “Chapter 7” or “Chapter 13.”
Chapter 7 and Chapter 13 are the most common types of bankruptcy Over 90% of the bankruptcy cases filed in Georgia by individuals or families are filed as either a Chapter 7 liquidation or as a Chapter 13 bill consolidation.
Non-business individuals can file Chapter 11 reorganization but it rarely makes sense to do so because of the cost and complexity. Family farmers can file a Chapter 12, which is like a Chapter 13 but available only to farmers.
Chapter 7 Bankruptcy – Liquidation of Debts
In general, Chapter 7 bankruptcy makes sense if you want to start over. Chapter 7 debtors usually do not own very much property (although you often can keep your house and car), and frequently file because of credit card debt.
Under the current bankruptcy law, you can only file Chapter 7 if your household income is below the average household income for a family of your size in Georgia. The median income tables are available at the United States Trustee’s web site. I also post the median income numbers for Georgia on my blog, which you can see here.
Note that these tables are adjusted every 6 months, so if your income is close to the limit, it might pay to wait until the new tables come out.
Here are the median income figures for Georgia as of April 1, 2015. If your income is less than these numbers, you should have no trouble filing Chapter 7.
Median Income Figures in Georgia for cases filed after April 1, 2015:
- Individual – $41,650 per year
- Family of 2 – $53,684 per year
- Family of 3 – $58,797 per year
- Family of 4 – $69,170 per year
- Add $7,500 annually for each additional child or household member
If your income is higher than these numbers, we have to run your budget through a second test called the means test. I have been able to qualify clients earning $100,000 or more to file Chapter 7 but the higher the income the more difficult it will be to fit into Chapter 7.
In addition, prior to filing bankruptcy, you are now required to complete a credit counseling session with an approved credit counseling service. This credit counseling session can be taken online if you wish. Here is a link to my list of credit counseling vendors.
Chapter 13 Bankruptcy – a Personal Debt Reorganization
By contrast, Chapter 13 is a personal reorganization that makes sense if you are trying to hang on to everything you own, or if you do not qualify for Chapter 7. You still must undergo pre-bankruptcy credit counseling prior to filing Chapter 13. Specifically, Chapter 13 is frequently used to stop a mortgage foreclosure or vehicle repossession.
Consider Chapter 7 when…
- high credit card balances with no reasonable expectation to pay these bills in a reasonable time
- high medical bills you cannot pay
- unexpected lawsuit such as repossession deficiency, credit card or old apartment complex
- loss of job and need to downsize lifestyle
- recent divorce has damaged budget
- you are under a lot of stress
Consider Chapter 13 when…
- facing mortgage foreclosure
- facing car repossession
- had income interruption and now need time to catch up
- have too much equity in house or car to qualify for Chapter 7
- want to try to pay back as much as you can
- you need to file for bankruptcy but cannot qualify under Chapter 7
- you are under a lot of stress
As discussed throughout this web site, bankruptcy is a last resort. Before filing bankruptcy, do your own research about non-bankruptcy alternatives. I generally advise my clients to avoid the debt negotiation services that you hear advertised on the radio or television.
I participate in a multi-lawyer blog called the Bankruptcy Law Network. If you go there and type debt negotiation in the search box, you will find a variety of articles like this one from lawyers all over the country discussing the questionable value of paid debt negotiation.
In 2009, I interviewed a documentary filmmaker named Kenny Golde, who was able to negotiate settlements of hundreds of thousands of dollars of credit card debt. As Kenny and I discuss during our interview, there are no secrets that the credit companies don’t want you to know. Credit companies will negotiate a lower balance, but generally they will not even start to negotiate until you are 3 to 4 months behind, and if you want to settle, you will need cash.
Depending on the circumstances, Chapter 7 or Chapter 13 can also be used to modify or eliminate IRS and other tax obligations, student loans and judgment debts. Please fill out my Georgia bankruptcy law new client questionnaire, fax it to me at 770-393-0240 and I’d be happy to schedule an appointment to give you my analysis.