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Filing for relief under Chapter 7 in Georgia will immediately stop all creditor collection efforts, including harassing phone calls, letters, foreclosures, repossessions and garnishments, just to name a few of the common activities typically associated with creditor collection attempts. Chapter 7 has helped millions of people across the nation overcome unmanageable debts to achieve a financial fresh start. But calling it a financial fresh start is really understating the gravity of completely eliminating your debts.  Not having to deal with suffocating debt loads that will finally allow you to save money for a house, wedding, vacation or car is an experience like no other.

Will I Lose My Property?

Chapter 7 bankruptcy is often referred to as the liquidating bankruptcy, though many people erroneously believe that when they file for relief under Chapter 7 of the bankruptcy code they will lose all of their possessions.  When you file bankruptcy, something called the bankruptcy “estate” is created.  This estate encompasses all rights, title and property you are entitled to as of the petition date. In simpler terms, this means that whatever property you own on the date you file bankruptcy now belongs to the Chapter 7 Trustee.  The trustee is the government appointed individual tasked with administering your case.  Administering your case refers to liquidating, or selling, your non-exempt assets to distribute to your unsecured creditors.  The trustee takes a percentage of the sales proceeds as payment, so he or she has an incentive to sell whatever property is available.  Remember though, that only non-exempt assets are capable of being sold by the trustee. The term “non-exempt” refers to the set of Georgia laws that protect certain property from being seized by creditors if they obtain a judgment against you.  For instance, under Georgia law, debtors can now exempt up to $21,500 in their residence ($43,000) from the trustee.  This means that if you and your significant other owe $200,000 on a house that the trustee can sell for $250,000, $43,000 of those sales proceeds will be distributed to you, $200,000 will be turned over to the mortgage holder, and the trustee takes the remainder.

Perhaps you don’t want the $43,000, and you would rather the trustee just leave it alone and let you stay in your home.  The fact is, real estate broker and attorneys’ fees would totally eat into the $7,000 available to the trustee from the above example that he would simply “abandon” the property back the debtor, meaning that the trustee has no interest in selling it.  Debtors can also exempt $5,000 in household goods and $3,500 in a car.  You may think that you have more than $5,000 in household goods because you paid so much more for all your furniture and electronics, but remember that used furniture and electronics has negligible value, so there is really nothing to worry about for the average debtor.

In reality, the trustee is typically only interested in real property in which the debtor has sufficient equity, cars, cash, stocks, and other fairly liquid assets.  Most people filing for Chapter 7 relief have a house and car that are both underwater and no valuable possessions, a case referred to as a no-asset case by the trustee that will be pushed through without a hitch.

Will Chapter 7 Stop a Foreclosure

Yes and no.  Filing Chapter 7 in Georgia will stop the immediate foreclosure of your home as a result of the automatic stay of bankruptcy.  The automatic stay is a statutory creation of the bankruptcy code that is responsible for the halting of any creditor collection activity, including the immediate foreclosure of your home or car.  However, this stay is only temporary, as your house or car lender will ask for relief from the automatic stay from the court to continue foreclosing on your property if you are behind on your payments and have no way of immediately catching them up.  This is why a Chapter 13 bankruptcy is the appropriate relief when attempting to cure past-due car or house payments.  In a Chapter 7, you will have 3 choices with what you plan to do with property securing a debt: 1) surrender and have your personal liability discharged, 2) reaffirm (agree that the debt will not be wiped out in bankruptcy) or, in the case of personal property like your car, 3) redeem (which means to pay the full value of the car in a lump-sum payment, in cash, to your car lender).

So What is the Purpose of Chapter 7?

The purpose of Chapter 7 is to wipe out your personal liability on debts.  Even if the bank forecloses on your house, you are still personally liable for the difference between the value of your house and the amount it sold for on the courthouse steps.  If you file a Chapter 7, this liability is eliminated.  People primarily file Chapter 7 to wipe out medical debts, credit cards, wage garnishments, judgment liens if no non-exempt property is available for the lien to attach, and to eradicate business debts, such as personal guarantees of small business owners.  Wiping out personal liability on personal guarantees is one of the most useful tools in filing a Chapter 7, as individuals with primarily “business debts” do not have to pass the “means test” in bankruptcy.  The means test is a congressionally created test that a debtor must pass if he or she makes more than the median income for his state of residence.  This means that many people make too much money to qualify for Chapter 7 relief if they have primarily consumer debts, as Congress seems to think that people making above a certain amount have the ability to repay at least a portion of their debts, so to file a Chapter 7 would be an abuse of the bankruptcy code.  An individual with primarily business debts does not have to pass the means test, so no matter his income, he can discharge a large amount of bad business debt with a Chapter 7 bankruptcy filing.