What Happens in a Chapter 7?

Clients often ask me what happens if they get a big raise or a start a business that does really well after filing a  Chapter 7 in Atlanta. Chapter 7 bankruptcy is literally a snap-shot in time of your finances at the time of the filing of your petition. The purpose of bankruptcy is to give you a new lease on life – a fresh start on your finances free from bill problems in the future. The Supreme Court has stated this as recently as 2007:  “The principal purpose of the Bankruptcy Code is to grant a ‘fresh start’ to the ‘honest but unfortunate debtor.”

What this essentially means is that whatever money or property you obtain after bankruptcy belongs to you.  When you file, a bankruptcy estate is created, and all property of the Debtor on the date of filing  becomes property of the estate to be administered by the Chapter 7 trustee.  Most cases are called “no-asset” cases, meaning that the debtor is able to exempt under Georgia law all property of any value from the reach of the Chapter 7 trustee.  This means that any weddings rings, musical instruments, household goods, clothes, etc. will be safe from liquidation.

What Happens in a Chapter 13?

A Chapter 13 bankruptcy is often called a wage-earners’ bankruptcy. This is because you will propose a payment plan to be approved by the court in which an amount equal to your disposable income will be deducted from your pay check each month.  While the confirmation of a plan is binding on all parties (debtor and creditors included), if you receive a large raise, win the lottery, or receive some other windfall, such as a large inheritance, the Chapter 13 trustee could request that your payments be increased to match your new disposable income.  Unfortunately, this is why is does not necessarily pay to work hard during a Chapter 13 plan. You may not get to enjoy the fruits of your labor, though often times the Chapter 13 trustee will not move the court to increase plan payments unless the change in income is substantial.