When filing for bankruptcy protection, you are required by Federal law to list all your property, regardless of whether you owe anything on that property. Many people think that if they list property in their bankruptcy case, they will lose it, so they avoid filing for bankruptcy protection. Bankruptcy exemptions are designed to protect your property so that you can keep it; however, there are limitations on how much equity you can have in your property and still keep it. There are different categories of exemptions, such as vehicles, real property, household goods, and jewelry, and the dollar amount for each category varies. Each State has its own bankruptcy exemptions and the Federal bankruptcy code also provides exemptions. It is critical when filing a bankruptcy case to understand how to apply the exemptions and the dollar amount for each category that is available to you.
State Vs. Federal Exemptions
When filing for bankruptcy protection, you must determine which exemptions to use – State or Federal. And, if you use State exemptions, which State’s exemptions should you use? If you have lived for at least two years in the State you are currently residing, you will most likely use the bankruptcy exemptions for that State. If your State allows you to choose between State and Federal exemptions, you will need to understand the difference and which exemptions benefit you the most. Most States require you to use that State’s bankruptcy exemptions if you are a resident of that State. If you have resided in the State where you currently live for less than two years, you may be required to use the exemptions for the State from which you moved or the Federal exemptions. Because the exemptions in some States are more favorable than other States, Congress established guidelines for determining which State’s exemptions to use to discourage people from moving to a State with favorable exemptions and immediately filing for bankruptcy protection – a practice called “forum shopping.”
Georgia Bankruptcy Exemptions
If you have lived in Georgia for the past two years and are filing for bankruptcy protection, you will use Georgia exemptions. Georgia exemptions are codified in the Georgia code at OCGA § 44-13-100. Georgia provides an exemption of $21,500 for equity in your primary residence – the homestead exemption. This exemption is available to you regardless of whether you have filed for the homestead exemption with your county tax commissioner but it must be your primary residence. This exemption is not available for rental or family property that is not your primary residence. Georgia also provides a $5,000 exemption for vehicles, a $500 exemption for jewelry, a $5,000 exemption for household goods, and an unlimited exemption for qualified retirement plans. There is also a wildcard exemption that can be applied to anything. The wildcard exemption in Georgia is $1,200 plus the first $10,000 of any unused homestead exemption. If a married couple files jointly, each individual gets the full exemption, so in most joint cases, you can double the exemptions. Equity in your property that exceeds the exemption available for that category is called “unexempt equity.”
Joint Filing Exemptions
When filing jointly as husband and wife, exemptions are per individual so be sure to understand who owns the property (i.e. the person on the deed to real property or the title to a vehicle) to determine how to apply the exemptions. For example, if a couple filing jointly has two vehicles and one vehicle is in the husband’s name with $3,000 equity and the other vehicle is in the wife’s name with $4,000 equity, both vehicles are protected since each individual has a $5,000 vehicle exemption. However, if both vehicles are in the husband’s name, you cannot use the wife’s $5,000 vehicle exemption so there will be $2,000 in unexempt equity for the vehicles.
Exemptions for Chapter 7 or Chapter 13
Bankruptcy exemptions are the same regardless of whether you file a Chapter 7 case or a Chapter 13 case; however, the implications can be drastically different. Simply stated, a Chapter 7 bankruptcy case is a liquidation of your assets and a discharge of your unsecured debts. Although a Chapter 7 involves liquidation of your assets, Congress realized that people need a roof over their head, clothing, transportation, and other necessities of life, so they developed exemptions to protect a certain amount of your property. However, if you have a significant amount of equity in your property, Congress felt it was not fair to your creditors to eliminate their debt while allowing you to retain all the equity in your property; therefore, bankruptcy exemptions are limited.
Chapter 7 Exemptions
If you have significant unexempt equity in property and you file a Chapter 7 case, you risk losing that property. For example, if you file a Chapter 7 and you have property with unexempt equity of $10,000, it is highly likely that the Chapter 7 Trustee will want to liquidate that property and use the unexempt equity to pay your creditors. Rather than the Trustee liquidating your property, you may be able to work something out whereby you pay the unexempt equity over time but you will be required to pay the unexempt equity into the Chapter 7 case. Therefore, it is critical that you understand the exemptions and apply them properly when filing for Chapter 7 bankruptcy protection.
Chapter 13 Exemptions
A Chapter 13 case is a reorganization of your debts through a plan of repayment over a three to five-year period. A misconception of Chapter 13 bankruptcy is that you must pay everything you owe to all your creditors, both secured and unsecured. Depending on your financial situation, you may not have to pay anything to your unsecured creditors (i.e. credit cards, medical bills, and unsecured loans). In bankruptcy terminology, this is often referred to as a zero percent plan. If you have unexempt equity in your property, then you may be required to pay a “pool” of funds equal to the unexempt equity to your unsecured creditors, even though you may otherwise qualify for a zero percent plan. The Trustee in a Chapter 13 case generally does not require liquidation of the property to pay your creditors, but the unexempt equity must be paid through the Chapter 13 plan over the life of the bankruptcy case.
Since you need to determine if there is any unexempt equity in your property, you must determine the value of the property. Most difficulties in valuation arise with real property – a primary residence, rental property, or family property. If you have not had your property appraised recently, you can use the county tax assessor’s value or use an online appraisal from Zillow or Eppraisal. When values reported by these sources vary greatly, it is advisable to get an appraisal on your property to make sure that you do not have any unexempt equity in the property, particularly when filing a Chapter 7 case. The Chapter 7 Trustee in your case will look at all these sources to ascertain the value of your property and if the Trustee believes there is unexempt equity, the Trustee will have a real estate agent provide an estimate of the value. When possible, you want to avoid getting into valuation disputes with a Chapter 7 Trustee. If the Trustee does liquidate your property and there are funds available after the cost of sale and all liens against the property have been satisfied, the Trustee is required to pay to you the exemption to which you are entitled before distributing the balance of the proceeds to your creditors.
Valuation for items other than real property can be obtained from various sources. The value of vehicles can be found online from NADA or Kelly Blue Book. Most people have online access to their bank accounts, retirement accounts, and life insurance policies so the values of these assets are not hard to determine. When valuing household goods, clothing, electronics, and jewelry, you should consider the fair market value of those items (i.e. what you would get if you were to sell everything at a yard sale) rather than replacement value. Once the value has been determined, you should deduct any amounts owed on those items to determine the equity. Then you can apply the appropriate exemption to the asset category to determine if there is any unexempt equity. If you are filing a Chapter 7 case, be prepared to pay any unexempt equity to the Trustee. If you are filing a Chapter 13 case, be prepared to pay any unexempt equity to your creditors over a 3 to 5-year period through the Chapter 13 plan.
Pro Se Filings
Less than one percent of Chapter 13 cases are successful when filed pro se (on your own, without an attorney). Chapter 7 pro se filings are more successful; however, if you do not understand bankruptcy exemptions, you risk losing your property. Many people think that if they file a case and something goes wrong, they can just get out of bankruptcy. While you have the right to voluntarily dismiss a Chapter 13 bankruptcy case, you do not have the right to voluntarily dismiss a Chapter 7 case. If you file a Chapter 7 case and later want out because you discovered the Trustee wants to liquidate your property, you may not be able to voluntarily dismiss your case and the Bankruptcy Court can force you to participate in the case.
We strongly recommend that you retain a bankruptcy attorney familiar with the bankruptcy code to assist you in filing your case. If you do not wish to hire an attorney, make sure you understand the bankruptcy code as it relates to all aspects of bankruptcy before filing your case.