Before filing for bankruptcy, you should speak with a knowledgeable lawyer to discuss the options available to you. For some, a Chapter 7 proceeding is the best solution because you can discharge nonexempt debts and make a fresh start. On the other hand, a Chapter 13 repayment plan might be the right choice, particularly if you are earning a steady income and are concerned about protecting your home against foreclosure. As you consider your choices, it is also important to remember that there are instances where a Chapter 13 proceeding might not be allowed because it puts creditors in a disadvantageous position relative to a Chapter 7 action.
Known as the “best interests of the creditors” test, federal law requires that unsecured creditors receive at least as much under your Chapter 13 repayment plan as they would if your case were filed as a Chapter 7 liquidation. To start this analysis, you must review the amount of money available to unsecured creditors after your nonexempt assets are sold and administrative costs and priority claims have been paid. Some of these calculations can be complicated, particularly in regard to exemptions available under Georgia law, so your lawyer can help you evaluate how much would be applied to your debts.
Once this figure has been determined, your Chapter 13 plan must provide unsecured creditors at least that amount over the life of the plan. Often, this is not a problem because disposable income adds up over a period of three to five years, even on a relatively tight schedule. However, if more money would go to creditors through a Chapter 7 liquidation, then your case could be converted to that type of bankruptcy.
The best-interests test is designed to prevent debtors from using Chapter 13 to retain valuable non-exempt property without paying unsecured creditors reasonably equivalent value. If you own non-exempt assets you want to keep, your schedule can provide for higher monthly payments. Alternatively, you might opt to surrender the asset once you have a full understanding of the situation.
Jeff Field & Associates represents Georgians in Chapter 13 and Chapter 7 bankruptcies. You can rely on our firm to conduct a thorough analysis of your debt situation so that you can make an informed decision about what best suits your needs. For a consultation, please call 404-381-1278 or contact us online to schedule a consultation. We have locations in Douglasville, Gainesville, Bogart, Lawrenceville, Marietta and Decatur.