What is Chapter 7 Bankruptcy?
A Chapter 7 Bankruptcy is a liquidation bankruptcy that allows most individuals to completely get rid of their unsecured debt such as credit card debt, medical bills, old utility bills, and old apartment leases. A debtor can keep a home or car in a Chapter 7 but they must be and remain current on their monthly payments. To qualify for a Chapter 7, the debtor must have not filed Chapter 7 bankruptcy less than eight years ago and meet an income test called “the means test.” The means test uses the median income for your household size and expenses based on the IRS standards of living.
Even if you are over the means test, some individuals still may be able to qualify for a Chapter 7 in Georgia because the means test allows for necessary expenses such as mortgage payments, medical bills, childcare, health insurance, taxes, and other allowed expenses. If more than 50% of the total debt is not-consumer debt or business debt, the debtor can avoid the means test entirely and file a Chapter 7 under the Business Debt Exception. Non-consumer debt includes taxes and essentially any debt that was NOT used to pay a personal, family, or household expense.
Since taxes are considered a non-consumer debt, a Chapter 7 is a great option for anyone that has dischargeable tax debt and their tax debt is more than 50% of their total debt.
In a Chapter 7, the trustee takes control over debtor’s assets and sells any unexempt property to pay back creditors. Most debtors do not have any assets of value or nonexempt assets to be liquidated. This is due to the fact that the bankruptcy code allows exemptions on real and personal property so that the debtor will have something when they exit bankruptcy. Although bankruptcy is federal law, each state may choose to use its own exemptions. In Georgia, a debtor can exempt up to $21,500.00 in real estate under the homestead exemption and $5,000.00 in a vehicle, in addition to many other exemptions provided by O.C.G.A. 44-13-100.
In most cases, the debt will be discharged and the debtor is released from all personal liability, i.e. will not have to pay any amount back to creditors. However, some debts are not-dischargeable and may remain after the bankruptcy case.