The following is a brief outline about the different types of bankruptcies available to most consumers. It is not meant to be a comprehensive
    explanation of tactics concerns that a consumer may have in deciding if bankruptcy is a viable remedy to their financial predicament.

    A consumer who files for protection under any chapter of the bankruptcy code is referred to as a "Debtor" or "Petitioner".

    In all bankruptcy cases, there are three primary types of debts; Secured, Priority and Unsecured.

    Secured Debts: A secured debt is a debt that has collateral. The most familiar types of secured debts are home mortgages and car loans and car
    leases. Other types that are not so familiar are purchase money securities, tax liens, judgment liens and statutory liens (i.e.: mechanics liens,
    hospital liens and materialman liens).

    Priority Debts: A Priority Debt is a debt that does not have collateral, but has special treatment under bankruptcy law. The most common types of
    Priority Debts are debts owed for State and Federal taxes, alimony and child support obligations. Generally, priority Debts cannot be discharged
    in a Chapter 7 bankruptcy.

    Unsecured Debts: An Unsecured Debt is a debt that has no collateral. These types commonly include credit cards debts, medical bills and liability
    from repossession or foreclosure. In a Chapter 7 case, these are the types of debts that most consumers have discharged.

    WHEN YOU FILE BANKRUPTCY:

    Once any bankruptcy case is filed, an "automatic stay" is imposed. The automatic stay is the "sacred cow" of the bankruptcy system. It imposes an
    injunction that takes effect immediately when a bankruptcy petition is filed. The automatic stay prohibits all collection action against the Debtor
    and his property, including, but not limited to, garnishments, repossessions and foreclosures.

    You can choose the kind of bankruptcy that best meets your needs:

    Chapter 7 -- Liquidation bankruptcy

    Most people are familiar with this type of bankruptcy to mean a "straight" bankruptcy. When seeking this remedy, a Debtor is requesting that the
    Court grant a "Discharge", or a forgiveness of debts.

    A Chapter 7 has the following characteristics:

  • It is available for both individuals and corporation.
  • A trustee is appointed in all Chapter 7 bankruptcies. A Chapter 7 trustee is an attorney appointed by the Court to make sure that the
    information contained in the bankruptcy petition and schedules are true and correct and that Debtor does not have any assets, above and
    beyond what the Court allows you to "exempt" or keep.
  • A trustee is empowered and obligated to sell any non-exempt property the Debtor may own and use any proceeds from the sale to pay
    unsecured debts.
  • A Chapter 7 case is usually completed and discharged in 4 to 5 months after filing.

    A Chapter 7 case is most suited for an individual or married couple that own little or no property and most of their debts are unsecured.

    Most Chapter 7 case are "no asset" cases. In other words, the value of the Debtor's real and personal property, less any loans against the
    property, fall within the allowable exemption.

    WHAT IS AN EXEMPTION?

    Because the allowable exemptions vary from state to state, it is best to consult with an attorney in determining the allowable exemption in your
    jurisdiction.

    Georgia has the worst exemptions than any other state in the union. The following are some examples of the available exemptions:

  • House or Residence: The debtor's aggregate interest, not to exceed $10,000.00 in value, in real property or personal property that the
    debtor or a dependent of the debtor uses as a residence.
  • Car or other Vehicles: The debtor's interest, not to exceed the total of $3,500.00 in value, in all motor vehicles;
  • Household Furnishings: The debtor's interest, not to exceed $300.00 in value in any particular item, in household furnishings, household
    goods, wearing apparel, appliances, books, animals, crops, or musical instruments that are held primarily for the personal, family, or
    household use of the debtor or a dependent of the debtor. The exemption of the debtor's interest in the items contained in this paragraph
    shall not exceed $5,000.00 in total value;
  • Clothing and Jewelry: The debtor's aggregate interest, not to exceed $500.00 in value, in jewelry held primarily for the personal, family, or
    household use of the debtor or a dependent of the debtor.

    If you have already filed bankruptcy under chapter 7, you may be able to change your case to another chapter.

    Your bankruptcy may be reported on your credit record for as long as ten years. It can affect your ability to receive credit in the future.

    WHAT IS A BANKRUPTCY DISCHARGE AND HOW DOES IT OPERATE?

    One of the reasons people file bankruptcy is to get a "discharge." A discharge is a Court order which states that you do not have to pay most of
    your debts. Some debts cannot be discharged. For example, you cannot discharge debts for:

  • most taxes;
  • child support;
  • alimony;
  • most student loans;
  • Court fines and criminal restitution; and personal injury you caused by driving drunk or under the influence of drugs.

    Federal income taxes may be discharged in a Chapter 7 case only upon a showing that:

  1. The consumer is an individual;
  2. The subject taxes were assessed more than 3 years prior to the bankruptcy being filed;
  3. The taxes are 1040 personal income taxes;
  4. The subject tax years' returns were not fraudulent;
  5. The consumer in no manner willfully attempted to evade or defeat the subject taxes;
  6. The consumer never executed a waiver extending the statutory period for assessment;
  7. That there were no payment plans or any offers in compromise ever entered into between the parties; and,
  8. That the subject tax liabilities were assessed more than 240 days prior to the filing of the Bankruptcy.

    A government guaranteed student loan may be discharged upon a showing that repayment of the loan would cause an "undue hardship". Proving
    undue hardship is a difficult task indeed and most courts are reluctant to grant one. A clear example of undue hardship would be a showing that
    the Debtor has a debilitating medical condition that prevents him/her from earning an income.

    The discharge only applies to debts that arose before the date you filed. Also, if the Judge finds that you received money or property by fraud,
    that debt may not be discharged.

    It is important to list all your property and debts in your bankruptcy schedules. If you do not list a debt, for example, it is possible the debt will not
    be discharged.

    The Judge can also deny your discharge if you do something dishonest in connection with your bankruptcy case, such as destroy or hide
    property, falsify records, or lie, or if you disobey a Court order.

    You can only receive a chapter 7 discharge once every six years. No one can make you pay a debt that has been discharged, but you can
    voluntarily pay any debt you wish to pay. You do not have to sign a reaffirmation agreement or any other kind of document to do this.

    Some creditors hold a secured claim (for example, the bank that holds the mortgage on your house or the loan company that has a lien on your
    car). You do not have to pay a secured claim if the debt is discharged, but the creditor can still take the property. As a result of this, most Debtors
    will enter a reaffirmation agreement with the lender in order to keep the property which is collateral for the loan.

    WHAT IS A REAFFIRMATION AGREEMENT?

    Even if a debt can be discharged, you may have special reasons why you want to promise to pay it. For example, you may want to work out a plan
    with the bank to keep your car. To promise to pay that debt, you must sign and file a reaffirmation agreement with the Court. Reaffirmation
    agreements are under special rules and are voluntary. They are not required by bankruptcy law or by any other law. Reaffirmation agreements --

  • must be voluntary;
  • must not place too heavy a burden on you or your family;
  • must be in your best interest; and
  • can be canceled anytime before the Court issues your discharge or within 60 days after the agreement is filed with the Court, whichever
    gives you the most time.

    If you are an individual and you are not represented by an attorney, the Court must hold a hearing to decide whether to approve the reaffirmation
    agreement. The agreement will not be legally binding until the Court approves it.

    If you reaffirm a debt and then fail to pay it, you owe the debt the same as though there was no bankruptcy. The debt will not be discharged and
    the creditor can take action to recover any property on which it has a lien or mortgage. The creditor can also take legal action to recover a
    judgment against you.

    Chapter 13 -- Individual Wage-Earner or Reorganization Bankruptcy

    A Chapter 13 bankruptcy is available to any individual or married couple whose income is sufficiently stable and regular to enable such individuals
    to make payments under a "Plan".

    In a Chapter 13 case, the Debtor is making a good faith attempt to pay back all or part of his/her debts. You can usually keep all your property,
    but you must earn wages or have some other source of regular income and you must agree to pay part of your income to your creditors.

    All outstanding debts, whether secured, priority or unsecured, are consolidated into one monthly payment and paid through a Chapter 13 trustee
    for a period not to exceed 60 months (5 years). The Court must approve, or "Confirm" your budget and your repayment plan.

    A Chapter 13 Trustee is appointed to the case and will collect the payments from you, pay your creditors, and make sure you live up to the terms
    of your repayment plan.

    In most jurisdictions, all debts owed prior to filing the Chapter 13 case are paid under the Chapter 13 Plan with the exception of the following:

    Mortgage payments that come due after the Chapter 13 is filed (only the months you were behind are paid under the Plan).
    Lease payments (residences or vehicles). Only the months you were behind are paid under the Plan.
    Ongoing monthly child support (only the months you were behind are paid under the Plan).
    Monthly utility bills, auto insurance etc.
    A useful advantage of Chapter 13 is that the Debtor's bankruptcy also protects a non-filing co-debtor or co-signer from collection action of
    creditors.

    Chapter 12 -Like chapter 13, but it is only for family farmers.

    Chapter 11 -This is used mostly by businesses. In chapter 11, you may continue to operate your business, but your creditors and the Court must
    approve a plan to repay your debts. There is no trustee unless the Judge decides that one is necessary; if a trustee is appointed, the trustee
    takes control of your business and property. A bankruptcy is not a "one size fits all" remedy and should be planned and discussed fully and
    carefully with an attorney specializing in these matters.

    The above contains general information and is not tailored to a specific legal problem; it should not therefore, be considered legal advice. Do not try to use this
    information without consulting an attorney to learn how the law affects your unique circumstances .
Deming, Parker, Hoffman, Campbell & Daly, L.L.C.
Attorneys At Law Since 1974    
770-564-2600 Metro Atlanta  912-527-2000 Savannah
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Bankruptcy in a Nutshell