Do I Qualify to File Chapter 7?

Qualifying for Chapter 7 Bankruptcy in Georgia

Assets and income are the two most significant qualifying factors for filing file Chapter 7 in Atlanta, Georgia. A “means test” was devised under the 2005 revision of the bankruptcy code; the means test is an income test that compares the debtor’s income to the median income of residents in the same county and state. Another key factor in analyzing whether filing Chapter 7 in Atlanta, Georgia is a good step for a debtor in financial crisis is determining whether the debtor has assets that can be sold to pay creditors. Under Georgia and bankruptcy law, “exemptions” or protections on property prevent liquidation of property in most Chapter 7 cases.

The Means Test in Georgia

The bankruptcy means test is a form that shows income and expenses for the purpose of testing if a debtor has disposable income and whether a debtor can file a Chapter 7, where s/he will not repay any debt. Or, in a Chapter 13 case, the means test determines how much a debtor should repay unsecured creditors. Debtors must list their income for the six months preceding the filing of the bankruptcy case. Income includes employment income, unemployment income, pension income, and business income for both the debtor and his/her spouse, even if s/he is not filing bankruptcy. The means test applies to HOUSEHOLD income. Some income, such as social security income, is not included in the means test. If a debtor’s (and his/her spouse’s) average monthly gross income is less than median income for his/her household size, then s/he will qualify to file Chapter 7.
If the debtor’s gross monthly household income exceeds the median income of a family of the same size, then s/he must complete the entire means test worksheet to deduct expenses to show that s/he has no extra income with which to repay creditors.

Deductible expenses include taxes, secured debt, health care costs, health insurance, childcare, mandatory retirement contributions, charitable contributions, and education costs for dependents.

Where a debtor does not qualify to file a Chapter 7 income because s/he makes too much money, Chapter 13 is always an option. A Chapter 13 bankruptcy case still takes income into consideration for determining the percentage of debt that the debtor should repay.

Assets in Georgia Chapter 7 Cases

Assets are the second key component of evaluating whether a person should file Chapter 7 bankruptcy in Atlanta, Georgia. Debtors are normally worried about whether they can keep property, such as cars and homes, in bankruptcy. The answer is probably yes because bankruptcy law provides “exemptions” that protect most property in Chapter 7 cases.

For example, the Georgia homestead exemption provides a $21,500.00 protection per person on a home. Homeowners in Georgia can conduct a simple liquidation analysis to see if the homestead exemption fully protects their home in bankruptcy.

For example, let’s use a home that is worth $200,000.00 and has a $180,000.00 mortgage debt. If the owner sold this home, s/he would recover $20,000.00 in profit, less the cost of sale. When a Chapter 7 bankruptcy trustee looks at this home, s/he will be unlikely to seek liquidation because the application of the $21,500.00 homestead exemption that can be applied to the potential profit on the home. Thus, the house is fully protected from liquidation in that example. On the other hand, if the house had no mortgage, a trustee would definitely want to sell it to generate a profit to repay creditors.

The homestead exemption is not the only exemption under Georgia and bankruptcy law. Some exemptions include car exemptions, clothing household good exemptions, jewelry exemptions, cash exemptions, and retirement exemptions. Thus, it is unusual that a Chapter 7 debtor actually loses property in bankruptcy. If a liquidation analysis indicates that a debtor could possible lose assets, a Chapter 13 bankruptcy can be a good alternative.

A knowledgeable Georgia bankruptcy attorney can tell you if you qualify for a Chapter 7 bankruptcy case. We are happy to answer your questions as what you will be able to keep in a bankruptcy case. Call us today at 404.585.0040 to schedule an appointment with an Atlanta bankruptcy attorney.