Most Georgia bankruptcy filers prefer taking the Chapter 7 route because it results in discharging outstanding debts while allowing debtors to keep most or all of their property. However, you shouldn’t assume Chapter 7 is the right fit for you. There are several factors to consider first, including your income, your expenses and whether you have too much equity in your home to prevent losing it to creditors.
Georgia’s bankruptcy exemptions allow you to protect up to $21,500 in home equity. In other words, if your home is worth that amount or less, then your creditors will have no right to claim your home or to force you to sell it. But, if you have more equity than that, the Chapter 7 trustee could take the home, sell it, use the proceeds to pay creditors and pay you $21,500 cash, in addition to any amount left over after your creditors are paid in full.
One possible way to avoid such a sale would be to factor in the trustee’s selling costs. If you have $30,000 in equity, your home would be vulnerable to the Chapter 7 trustee because that’s more than the exemption amount. But the trustee might incur $10,000 in fees and costs to sell the home. In that case, your net equity would be $20,000, bringing you back within the exemption amount so you could keep the home.
Another alternative, if you have funds available, might be to negotiate a payment with the trustee. Trustees don’t favor taking people’s homes and they are often willing to work with filers to avoid sales.
The reality is, however, that filing Chapter 7 when you have significant home equity puts your home at risk. You may be better off filing for Chapter 13 instead. In that type of bankruptcy, you’re more likely to be able to keep your home if you are current on your mortgage. Even if you are behind, Chapter 13 allows you to make up mortgage arrears as part of a court-approved repayment plan.
A Chapter 13 plan allows you to consolidate debts and make a single monthly payment over a three- to five-year period. If you stick to the plan, any remaining unsecured debts are discharged. Your mortgage loan will stay in effect and you’ll need to keep repaying it after your Chapter 13 case ends, but doing so will be easier without the burden of credit card or medical debt. Chapter 13 can also eliminate (strip) other liens, such as second mortgages, thereby relieving you of those debts as well.
Jeff Field & Associates guides Atlanta-area residents through Chapter 7 and Chapter 13 bankruptcies. Our attorneys can explain all the details about your options for keeping your home. Give us a call at 404-381-1278 or contact us online to schedule a meeting at one of our offices in Athens, Douglasville, Gainesville, Lawrenceville, Marietta or Scottsdale.
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