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, for cases filed in the State of Georgia, Georgia law controls what you can “exempt” or shelter from creditors. The federal Bankruptcy Code specifically allows States to create their own exemption rules and Georgia has elected to do so. Examples of exempt property include your clothes, your tv, vcr, pots and pans, most furniture and personal items. Cars and houses can also be “exempt.” However, your exemption is limited to a certain dollar value. By declaring this type of property as “exempt,” you keep it and no one can try to seize it.
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 I Determine the Fair Market Value of my Real and Personal Property?
You may be asked to provide proof about the value of your property. Here are some suggestions about how to value your home and your personal property:
- real estate – ask a local real estate agent to give you a written “drive by” appraisal that includes a printout of comparable home sales in the neighborhood. If your house needs repairs, have a handyman given you a written proposal and make sure that your real estate agent is aware of these needed repairs.
- cars and trucks – take your vehicles to Car Max and ask for a written valuation
- electronics and household goods – make a list of your household goods and go to eBay to look for equivalent items. Make note of the value for each item of household goods
- jewelry – take your jewelry to a jeweler or perhaps an Atlanta pawnshop or jewelry buyer who buys used watches and rings and ask for a written “quick sale appraisal.”
How do I Determine if my Property is Exempt and therefore Protected?
Unless you have unusually valuable property, there is a good chance that most of your property will be exempt. Understanding the Georgia exemption rules and how they apply to your bankruptcy case is perhaps the most confusing part of bankruptcy, especially for bankruptcy filers who try to represent themselves. Exemptions are not automatic – you have to claim them on Schedule C of your petition. You can learn more about the Georgia bankruptcy exemption rules by clicking on the link.
There are also special rules that apply to settlement proceeds from a car accident case or the settlement of a Georgia workers’ comp case while you are involved in a Chapter 7 bankruptcy. You can read more about these special rules by following the highlighted link.
Recently, we have seen more instances where our clients have pledged jewelry, tools or automobiles at pawn shops. Bankruptcy can modify pawn shop transactions, but only under certain circumstances. Click on the link to learn more about pawn shop loans in Atlanta and bankruptcy in the Northern District of Georgia.
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 than 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.