As with most legal matters, the answers can be found by exploring the bankruptcy code and then discussing the situation with a knowledgeable bankruptcy attorney. Each state offers exemptions that may help some people who file for bankruptcy retain certain items. In Georgia, these exemptions are fairly clear, but can be confusing to those who do not regularly deal with them.

Exemptions Thoughts About Chapter 7 Versus Chapter 13 Bankruptcy

Before diving into Georgia bankruptcy exemptions, it is important to note that exemptions are generally more important to people contemplating Chapter 7 bankruptcy. Chapter 7 bankruptcy involves liquidation of as many assets as possible. Chapter 13 bankruptcy is more of a rearrangement of debts, which is a bit different. Still, even those who file for Chapter 13 bankruptcy may want to understand exemptions, just in case.

The basic Georgia-specific exemptions most bankruptcy filers care about are the homestead exemption, motor vehicle exemption, personal property exemption, support exemption, public benefits exemption, wage exemption, tools of the trade exemption, pension and retirement exemption, insurance exemption, and wildcard exemption.

Homestead Exemption

“Will I lose my home?” This is one of the first inquiries most people make when they start to realize bankruptcy may be the wisest way for them to get out from underneath years of mounting debt. While the thought of having to suddenly move can be scary, it can also be a practical way to pay off creditors. Nevertheless, the homestead exemption in Georgia allows some homeowners to keep their residences.

The state allows for an exemption of up to $21,500 per person or $43,000 if a couple files for bankruptcy together. That amount goes against the equity held in the house. For example, if married spouses file for Chapter 7 bankruptcy and own a home worth $150,000, they will need to know their equity stake. If it is $40,000, they are $3,000 under the joint homestead exemption. From a practical standpoint, that means they can probably hold onto their home. Plus, they can use the extra $3,000 to put toward the wildcard exemption, explained below.

On the other hand, if this same couple’s equity stake in their home was $80,000, they would need to sell it. After the sale, they would be able to hold onto $43,000 and the other $37,000 would be distributed among their creditors.

Wildcard Exemption

Although the name may sound strange, the wildcard exemption simply gives bankruptcy filers another chance to protect their assets. Georgia allows up to $10,000 in leftover equity money that is unused from the homestead exemption to be put toward another exemption. Additionally, it provides $1,200 to protect anything else. That is up to $11,200 that could go toward saving property.

Do many people actually use the full wildcard exemption? To be sure, it depends upon their situations. However, a large number of Chapter 7 bankruptcy filers decide not to hold onto their homes, or have minimal equity in the real estate property they own. Or, they do not own any real estate at all. Therefore, they can use the $10,000 plus $1,200 wildcard exemption to protect themselves in other areas.

Motor Vehicle Exemption

Like a home, a vehicle is an essential asset to most modern individuals and families. Having a working vehicle can be useful to get to and from work, or have the freedom to go to the grocery store or attend medical appointments when needed.

In Georgia, the motor vehicle exemption is up to $5,000 in equity. Again, this means that if the individual or couple has $5,000 or less of an equity stake in their vehicle, they can keep it. Of course, if the vehicle is a pricier model and they have more equity in it, they may need to get rid of it to pay down debt as part of their bankruptcy plan.

It is critical to note that the wildcard exemption has ramifications for motor vehicle exemptions, too. Someone who uses $10,000 or less of their homestead exemption equity allowance can put the amount toward saving their motor vehicle.

Personal Property Exemption

The antique piano inherited from a great-grandmother. The beautiful painting that’s actually worth several thousands of dollars. The leather living room set purchased in 1990 that still looks like new. Can these pieces of personal property be kept, or do they need to go?

The personal property exemption in Georgia is set at $5,000, which is a generous amount. Most items in homes have depreciated greatly over the years and are not worth very much in terms of resale value. Still, some personal belongings may command high rates on the open market. Plus, each item only has a cap of $300. Consequently, a musical instrument such as a baby grand piano may be worth $3,000. Although $3,000 is less than the $5,000 exemption, it is $2,700 more than the $300. That means it should be sold. From a realistic standpoint, though, an item that is worth $325 may cost more to sell than $25. In that case, the item usually stays in the bankruptcy filer’s possession.

It should be noted that jewelry can be protected up to $500 rather than $300. So are $7,500 in lost future earnings and $10,000 in personal injury lawsuit case recoveries. Burial plots are completely covered by the personal property exemption as long as the homestead exemption has not been used. And home health aids are generally protected in their entirety, no matter how much their resale value.

Support Exemption

Where does support, such as child support and alimony, fall into the picture when it comes to protecting assets during Chapter 7 bankruptcy? Georgia protects all child support and alimony proceeds that have been assigned by the court as necessary.

Public Benefits Exemption

Persons who have filed for bankruptcy are entitled to keep any unemployment compensation, workers’ compensation amounts, Social Security benefits, and related benefits. They should talk with their bankruptcy attorney in detail about the best way to save incoming benefit monies to avoid future debt issues.

Wage Exemption

How much of their wages do bankruptcy filers in Georgia have the opportunity to keep? The state caps the percentage at 75 percent of earned, unpaid weekly earnings. If the 75 percent of earnings is less than 40 times the United States’ accepted hourly minimum wage, the minimum wage amount will supercede the 75 percent of earnings.

Be aware that bankruptcy court judges can sometimes change wage exemptions for people who fall into very low income status.

Tools of the Trade Exemption

For individuals who rely on specific equipment to conduct their work, Georgia allows for up to $1,500 in exemption. These tools of the trade could be anything from a laptop to hammers and saws.

Pension and Retirement, and Insurance Exemptions

Retirement accounts including IRAs and 401(k) setups can be retained at their full value, regardless of whether an individual files for Chapter 7 or Chapter 13 bankruptcy. The same is true of pensions. However, only $2,000 of unmatured life insurance cash value equity can be kept by bankruptcy filers.

Answering Tough Bankruptcy Exemption Questions

Under the best of circumstances, filing for bankruptcy can be a complex process. If you are thinking about using bankruptcy law to help you either get a little breathing space or give you a fresh start, please contact the Law Office of Jeffrey B. Kelly at (770) 637-1756. During your initial consultation, you may want to discuss exempt property considerations, as well as other aspects of how bankruptcy may affect you and your family.

What Is State Law on Exempt Property in Georgia?

Georgia state laws provide very specific protections for the bankruptcy estate. Take a closer look at some of the exempt assets in bankruptcy as they apply to Georgia.

Motor Vehicle Exemptions

Georgia bankruptcy law states individuals filing for bankruptcy may claim any number of vehicles as long as the value of all vehicles combined is less than $5,000 for individual bankruptcy filing or $10,000 for married joint-filing debtors. Many times, this is enough to protect one or two vehicles, depending on their value.
If there is a loan on the vehicle, the bankruptcy trustee will look at the value of the vehicle and the amount owed on the loan. There are two key concerns here. First, if the equity in the vehicle is under the $5,000 exemption, the vehicle maintains protection.
In situations where the vehicle seems to have more than $5,000 worth of equity, the trustee looks a little deeper. The as-is cash value must be determined. For example, let’s assume a borrower owns a vehicle with a fair market value of $10,000. He or she has a loan on the vehicle and owes $3,000 on the vehicle. Initially, the equity is over the value of $5,000 that is protected by the exemption. However, this is not the as-is cash value. As-is vehicles need reconditioning and repairs before they can be sold for that value. For this reason, the vehicle’s as-is value may be only $7,000. The bankruptcy trustee considers this when determining if a vehicle has protection.

House Exemptions

Many people worry they will lose their home in Chapter 7 liquidation. It is true this could happen. If you own your home outright or your home’s equity is above the state’s exempt level of $21,500, you may not be able to protect it. If you file jointly, the home’s equity cannot be more than $43,000. As much as $5,000 of this can be applied to a wildcard exemption.
As with vehicles, the bankruptcy trustee must determine what the as-is cash value of the home is. This may be just 60 percent of the fair market value of the home. If a cash buyer approached you to buy your home, this may be all they offer.

Current Wage Exemptions

When filing Chapter 7 bankruptcy, know that it is a fluid process. This means that at any given time, you may have some cash in the bank. Georgia’s bankruptcy law states that up to 75 percent of a debtors current wages are exempt. This means that up to 75 percent of the amounts in your checking and savings accounts are exempt.

Annuity Accounts

Individuals with a retirement account, including an IRA, 401(k) or other accounts have full protection for those assets from the bankruptcy case. Unemployment benefits, workers’ compensation benefits, public assistance benefits, veterans’ benefits and Social Security disability payments or income are also exempt.

How Can You Get Help for Your Bankruptcy Case?

We encourage you not to make any decisions about your bankruptcy case without first talking to our team. Contact an experienced bankruptcy attorney in Rome from the Law Office of Jeff Kelly.

Under Federal law, the Consumer Credit Protection Act limits the amount of money that can be garnished from your disposable income (the amount of money left over after mandatory deductions like taxes and Social Security).

These limits are set by category of debt:

• Federal student loan debts are capped at 15% of your weekly income;
• Child support and alimony payments are limited to 50% if you are supporting another child or spouse and 60% of your income otherwise;
• Back taxes wage garnishment is calculated by the IRS, depending on the deductions you take. However, they generally amount to no more than 15% of your weekly pay.

Calculating Garnishments from Court-ordered Judgments

Court-ordered judgments are obtained after a credit card, personal loan, or medical debt company have filed a lawsuit against you and the judge has ordered that you are liable for the debt. Before the judge orders you to pay the debt, you will have an opportunity to contest it in court. If you don’t, or if you lose the case, your paycheck might be garnished.

How much money can be garnished will depend on your weekly income. Federal law caps this type of wage garnishment at 25% of your weekly disposable income, or the amount by which your weekly income exceeds 30 times the federal minimum wage (currently $7.25 an hour),

This means that if you are earning $290 or more, after taxes and withholdings, 25% of your income can be taken. If you are earning between $217.51 and $289.99 a week, anything you earn above $217.50 can be taken. However, if your weekly disposable income is $217.50 or less, your wages will not be garnished.

Example Wage Garnishment Calculation

How does this play out with real data? Keep in mind, these are estimates that may or may not reflect your personal situation.

In Georgia, the median annual 2016 salary was just over $51,000, which after Federal taxes will come out to $46,500 if you are single with no dependants and taking the standard deduction. Taking out FICA (Social Security), a flat 7.65% at this income level will take out another $3,900 and put your annual discretionary income at $42,581, or your weekly discretionary income at $819.

Put more simply,

$51,000 annual salary (before taxes and FICA)
-$4,519 (Federal Taxes)
-$3,900 (FICA)
= $42,581 discretionary annual income

$42,581 ÷ 52 weeks = $819 weekly discretionary income

From this, if you owe money for:

Defaulted federal student loans: you could pay $122.85 each week ($819 discretionary income x 15% garnishment).

Child support and alimony: you could pay $491 each week if you owe support to one child or spouse ($819 x 60%) or $409 if you are supporting another child or spouse ($819 x 50%).

Back taxes: you could pay $122.85 each week ($819 x 15%).

A court-ordered judgement: you could pay $205 a week ($819 x 25%).

Georgia follows Federal law, so the calculation will not change here. However, other states may follow a different pattern.

Protecting Yourself Against Wage Garnishment

First and foremost, do not ignore court papers. If you are served with a lawsuit, read the papers careful and seek legal advice. If your wages are currently being garnished, you may be able to protect some of your income that is exempt from garnishment, such as social security income or social security disability, retirement income or unemployment income.

Filing for bankruptcy is also an option, because it will freeze all collection actions until you have time to get back on your feet again.

This article is for informational purposes only and should not be taken as legal advice. To speak with a qualified wage garnishment attorney, contact Kelly Can Help online or call us at 770-637-1756.

What Is a Wage Garnishment and How Can It Impact You?

A wage garnishment occurs when a creditor files a lawsuit against you in a court of law. The court must approve and issue a money judgment against you in order for a garnishment to proceed. In the event the court approves the garnishment, the creditor is then able to send information to your employer about the garnishment. This will legally force your employer to take the court-approved amount out of your paycheck and pay it to your creditor.

If a garnishment occurs, the court will determine the proper amount for the garnishment. In some cases, this may be 25 percent of your income. Percentages vary. It depends on the amount you owe and the amount you earn.

Most often, individuals do not know much about a wage garnishment until they receive a court order or notice that the garnishment will occur. This can create a bit of a panic, but you can stop the garnishment from occurring. To do so, you may need to file bankruptcy. When you file, it automatically freezes all legal action against you. This action can be very powerful when it comes to giving you the freedom to get your debts in order.

Some Creditors Do Not Have to Go to Court

Most credit card and personal loan creditors must go through the court system to garnish your wages. However, some types of debts do not require garnishment orders to come from the court system. This includes creditors that you owe taxes to, such as the local, state, and federal government. It also includes student loan debt, child support debt, and alimony debt. As a result, you should act quickly on these types of accounts to minimize your losses.

What About Exemptions?

Under state and federal law, individuals have some form of protection against the garnishments themselves. These protections are called wage garnishment exemptions, which help protect some of your earnings from garnishment. More specifically, the exemptions protect specific types of income you have.

Though state laws differ, most of the time, states will have protections in place to protect some or all of your income from garnishment if your income comes from any of the following sources:

• Social Security income, such as Social Security Disability
• Child support income
• Alimony income
• Retirement income
• Disability income
• Unemployment insurance

Factors such as the amount of money you have in your bank accounts and pay stubs detailing your income are used to verify how much you should pay in garnishments. Do not assume your wages are protected.

What Should You Do?

Whenever possible, pay your debts on time. If you have the ability to make lump sums on your debts, do so. If you cannot, work with the creditor or collection agency to make payments that fit your disposable income. The key here is that you remain in charge of what happens. You may wish to make a claim of exemption. If your income comes from a source listed above, this may be all you need to do.

However, if you cannot secure the wage garnishment exemption, or you are earning minimum wage and simply unable to pay off your debts, it may be time to consider bankruptcy. You may find this is one of the best ways to freeze all of your debts immediately. Then, the court can determine if you should repay your debts after the bankruptcy discharge occurs.

Ready to Get Some Additional Help?

Learning about all federal bankruptcy exemptions and what you can expect in terms of wage garnishment takes time. Our team can help you gather the information so you can learn what to expect. If you are facing debt collection, tax debts you cannot pay, or other financial difficulties, contact The Law Offices of Jeff B. Kelly about your options. Call us at 770-637-1756.

There are many different types of bankruptcy available to people who find themselves in an overwhelming amount of debt and no other viable options. Two of the most common types of bankruptcy are Chapter 7 and Chapter 13. Chapter 7 debtors get their fresh start quickly, and Chapter 13 debtors repay their obligations based on what they can afford and not what the moneylenders demand. While both have their place, knowing the difference between Chapter 7 and Chapter 13 along with what each one entails will help you make the best decision as every situation is different.

Chapter 7

Chapter 7 bankruptcy is one of the most common types of bankruptcy declared, and it comes with the benefit of having all of your debts discharged upon filing. This means that you will be given a fresh start, as none of the debts that you have will continue after filing. Creditors are also required to cease contacting you as soon as bankruptcy filings begin to be processed by the court.

Exemptions in Chapter 7 Bankruptcy

Somewhere along the line, someone labeled this type of bankruptcy as “liquidation,” and the tag stuck. Most consumer assets are exempt from liquidation – see details for federal exemption and Georgia exemption. So, most all debtors in Georgia can keep their:

• House: Single filers can exempt up to $21,500 in home equity; joint filers may be able to double that figure. Moreover, up to $5,000 of the unused homestead exemption ($10,000 for some joint filers) can be applied to the wild-card exemption.
• Cars: Up to $5,000 in vehicle equity is also exempt. As a general rule, newer cars have almost no equity (and therefore they are of no interest to creditors) and older cars have almost no monetary value, so this exemption seems small but is actually quite generous.
• Retirement Accounts: Earned IRAs, 401(k)s, pension plans, and other nest eggs are all exempt regardless of their cash value.
• Income: 75 percent of current wages, and even more in some cases, are exempt, as are most public benefit and spousal/child support payments.
• Personal Property: Clothes, furniture, jewelry, and personal effects are all exempt up to certain limits.
• Any Other Property: Under Georgia law, debtors can exempt up to $1,200 of any otherwise non-exempt property; some joint debtors can exempt up to $11,200.

Because of these exemptions, “liquidation” is a misnomer, since most people have few, if any, non-exempt assets. Examples of unprotected assets include extremely valuable homes and vehicles, vacation homes, and inherited IRAs.

Even if an asset does not fall under a recognized or wild-card exemption, it is not automatically liquidated. The trustee (whose role is explained more fully below) has a duty to act in the best interests of the creditors and not a duty to seize as much property as possible. Assume Donny Debtor has a bass boat that he cannot exempt. Once the trustee factors in the bother and expense of seizing the boat, storing it, making necessary repairs, and listing it for sale, the trustee may well allow Donny to keep the boat.

Chapter 7 Bankruptcy Eligibility and Requirements

About six weeks after the voluntary petition is filed, the 341 Creditors’ Meeting takes place. This too is a misnomer, because the creditors hardly ever appear. In a Chapter 7, the trustee basically looks for red flags in the bankruptcy paperwork and ensures that the debtor is eligible for Chapter 7. In most cases, the discharge order follows about six on nine months later, and the case is over.

That eligibility comes from the Means Test, a relatively new addition to the Bankruptcy Code. Only people whose income falls below the average income for that geographic area can file Chapter 7. In Georgia, that figure is typically $70,325 for a family of four.

Prior to your petition being considered, the court will mandate that you go through credit counseling with an appointed financial advisor to ensure that no other options are available to you. Your assets and liabilities will be compiled by a trustee and assets you have will be sold off to pay down as much of the debt as possible, then the rest will be discharged.

Credit Score After Chapter 7

The major drawback to chapter 7 is the initial damage that will be done to your credit score after filing. Depending on where your score is, you may see a drop of up to 200 points in your score, and chapter 7 stays on a credit report for 10 years after filing has taken place. Chances are if you are in a position considering bankruptcy, your credit score could be damaged just as badly by missed payments if it has not already been. There are steps that you can take to help repair your credit score as well, such as attaining secured lines of credit or getting larger loans as your credit score begins to improve. In some cases, individuals can even get their score back to where it was before the bankruptcy within 5 years of filing.

Chapter 13

Chapter 13 Bankruptcy is often considered to be ideal for people who have a source of income and a desire to repay their debts, but because of life circumstances or high-interest rates are unable to do so.

Chapter 13 bankruptcy will re-structure debt instead of eliminating it as chapter 7 does. Most often, people considering this option are expecting a life change like a promotion or new job, and the debt is only difficult to manage for the time being. This plan will also allow for the debtor to keep most assets, as the debt will not be eliminated, simply made more manageable. The court will create a plan for the debtor to pay off the debts and will dictate the new terms of the loan. This can be a huge benefit to the debtor, as the creditors will not have a say in new interest rates or payment schedules. The debtor is also protected from any wage garnishments, lawsuits, or contact by the creditor.

Chapter 13 Exemptions and Eligibility

There is no eligibility requirement for the “wage-earner” or “repayment” plan, and the same exemptions apply. The main difference between Chapter 7 and Chapter 13 is the debtor’s financial goal. Liquidation is a great way to quickly get rid of excess debt and start over; the repayment plan gives debtors a chance to catch up on delinquent debt, like past-due mortgage payments, so they can still keep the property.

Chapter 13 Repayment Plan

Chapter 13 repayment plan normally lasts either three or five years. In addition to the voluntary petition, the debtor files a proposed repayment plan. Later, instead of simply reviewing the paperwork, the trustee essentially places the debtor on an allowance for the repayment period. After paying for monthly essentials, the debtor gives any excess money to the bankruptcy trustee for distribution among the creditors. Secured creditors (house, car, and so on) must be paid in full; unsecured creditors (credit card, medical bill, and so on) divide whatever is left. Any remaining unpaid unsecured debt is discharged.

Credit Score After Chapter 13

Chapter 13 will stay on an individuals credit score for 7 years after the filing and the initial impact to a credit score will not be as large. As with chapter 7, it is still possible to bring your credit score back up. However, this type of bankruptcy should really only be considered by individuals that will be able to make the payments on the re-structured debts.

Non-Consumer Bankruptcies: Chapter 11 & Chapter 15

Chapter 11 is almost exclusively used by corporations who want to continue business. Similar to chapter 13, debts will be repaid through a court-approved reorganization plan. For individuals who own shares in a company or even own their own business, going into chapter 11 is not the end of the company, merely an attempt to get back to profitability. Options vary for companies under chapter 11 on how to deal with the debt, whether that be a simple re-structuring or a discharge of some contracts and debts while others are repaid.

Chapter 11 reorganization is a very complex proceeding that few consumers file. In addition to the complexity, it is very expensive (the filing fee alone often exceeds $1,500), so while Chapter 11 is ideal for large or medium-sized companies that need to make major changes in order to return to profitability and also need the protection of the bankruptcy court, Chapter 11 is not really for consumers.

Chapter 15 is not really a consumer bankruptcy either, especially after the Second Circuit Court of Appeals in New York basically changed the eligibility requirements in 2014. Moreover, in most cases, only municipal governments can file Chapter 9. A fourth type (Chapter 12) only applies to a handful of family fisheries and family farms.

What Can I Do?

Both Chapter 13 and Chapter 7 involve an automatic stay, at least in most cases. While the case is pending, most creditors may not garnish wages, foreclose on property, pursue civil lawsuits, or otherwise attempt to collect on a debt without special permission from the bankruptcy judge.

Whatever situation you find yourself in, declaring bankruptcy does not necessarily mean the end of the world. Some situations of overwhelming debt call for extreme action like bankruptcy and your wellbeing is something to consider in these situations. If you cannot afford even basic necessities because of your debt, it may be time to consider bankruptcy.

Although you may be able to find bankruptcy petitions that you can file by yourself online, it is still the best option to contact a bankruptcy attorney in Georgia. Having someone experienced in bankruptcy can first help you evaluate if it is the best option first, and then help you with the petition itself. It is not uncommon for people to keep their most important assets when they have assistance in these cases.

Why are exemptions important?

Exempt property is a property that you can keep after filing for bankruptcy. Maximizing your exemptions will allow you to keep the maximum amount of property. This means that you may lose very little when filing for your bankruptcy, other than the filing costs and attorney fees.
It is important to note that exemption values change at the federal level every three years. The current exemption values listed below reflect the most recent updates in 2016. The values will be changed again in 2019.
Spouses filing for bankruptcy together are allowed to double the value of exemptions they claim.

Federal homestead exemption

The homestead exemption is the most common exemption claimed by bankruptcy filers. Filers can claim up to $23,675 in equity in their home. If a married couple files jointly, this amount can be doubled to $47,350
It is important to note that this exemption cannot be claimed for investment or vacation property. It is intended to be used for real property, including motorhomes and unimproved land you intend to live on in the future.
Related article: “Can I File Chapter 13 and Keep My House?”

Personal property

Anything you own that is not your house or land is considered personal property. The Federal Bankruptcy Code provides certain exemptions for a number of different types of property.

Your motor vehicle

Federal law allows each spouse to claim an exemption of $3,775 for one motor vehicle, be it a car or a motorcycle.

Tangible Goods

In addition to being able to claim exemptions for your home and your vehicle, you are also allowed to exempt specific types of personal belongings up to a certain amount as follows:

Household goods and furnishings: you are allowed to keep up to $600 per individual item and an aggregate of $12,625 for household goods and furnishings, which include:

• Furniture
• Appliances
• Clothing
• Books
• Animals
• Crops
• Musical instruments, and
• Other household goods

Tools of trade: you are allowed an additional exemption of $2,375 for professional books and equipment needed for your profession

Jewelry: you are allowed $1,600 in federal exemptions for any jewelry you own.

Health aids: you can keep any and all medically necessary aids prescribed by a professional for you and your dependents, such as a sleep apnea machine prescribed by a physician.

Wildcard exemption: in addition to these types of physical property, you may exempt up to $1,250 plus $11,850 of any unused portion of your homestead exemption to use toward any property of your choosing.

Other types of property

In addition to your physical things, there are certain amounts of property that you own but cannot touch.

Assistance payments are considered exempt property. You will continue to receive all social security, unemployment, disability, public assistance payments, and veterans’ benefits you are entitled to.

Spousal, alimony, and child support payments that are reasonably necessary for your support are exempt.

Crime victim compensation, wrongful death awards, and compensation for loss of future earnings are also exempt.

Personal injury awards are also exempt up to $23,675, excluding pain and suffering or pecuniary loss. If you were in a car accident or may have another legal claim that you have not yet pursued, talk to your bankruptcy attorney about your options for the claim before filing. Failure to list such a claim under an exemption may result in you being foreclosed from pursuing this claim at a future time.

Tax-exempt retirement accounts, including 401(k)s are exempt without regard to their value. However, IRAs and Roth IRAs are capped at $1,283,025. Educational IRAs are exempt without regard to value.

Life insurance is also exempt. Unmatured life insurance contracts are fully exempt. Matured life insurance contracts are exempt for a loan value up to $12,625.

This article does not provide legal advice. Contact The Law Office of John B. Kelly online or call us at 770-637-1756 to discuss your questions about filing for bankruptcy, including what exemptions your family qualifies for under federal and state law.

Under the Tax Return Intercept Program, participating local governments essentially place a lien on certain tax returns. Taxpayers in these situations should receive a notice letter that gives them thirty days to successfully challenge the lien or resolve the debt. If the City of Lawrenceville, or any other government unit, executes on the lien, the taxpayer has thirty days to file a dispute in Atlanta with the state.

Successful grounds for a dispute are basically limited to misidentification of the debtor or successful account resolution.

Tax Revenue in Georgia

For the most part, the Peachtree State has recovered nicely from the effects of the recent recession. People are working and tax revenue is up.

But, the news is not all good. Some are concerned that although the state is in the black at the moment, it may be unable to handle future growth. As a result, some advocates support drastic measures to create new revenue streams. Moreover, Georgia is particularly notorious for holding onto tax refund checks until the last minute and delaying them whenever possible in the name of “fraud investigations,” so the state gets an extra few dollars in interest revenue.

Discharging Taxes in Bankruptcy

Against that backdrop, although it is possible to discharge both state and federal taxes in Chapter 7 or Chapter 13 bankruptcy, very strict rules apply. Moreover, if the federal IRS or state Department of Revenue contests the discharge, the taxing authority need only prevail by a preponderance of the evidence, which means “more likely than not.”

The rules for discharge are very well-established:

• Income Tax: Payroll, property, excise, and anything other than income taxes are not dischargeable under any circumstances. The Bankruptcy Code does not really define “tax” or “income tax,” so to prevent discharge, the taxing authority only needs a reasonably compelling reason to classify the tax as something other than income tax, because of the low standard of proof.
• No Fraud: Courts have consistently ruled that fraud is not a matter of intent but rather a matter of mathematics. Instead of an evil or impure motive,theIRS/DOR must only show “badges of fraud,” such as:
  • Failure to keep records,
  • Large income understatements,
  • Failure to cooperate, and
  • Inconsistent behavior.

Bear in mind that the standard is more likely than not, so if Tom Taxpayer fails to return a couple of phone calls, the IRS/DOR could deem such behavior as failure to cooperate, and a bankruptcy judge might very well agree.

• No Willful Evasion: A willful failure to pay taxes is intent-based, because it basically involves an acknowledgement that the tax is due but a refusal to pay it. Therefore, taxpayers who file their returns on time and ignore collections notices while they wait for the clock to tick down may be ineligible for discharge.
• Three/Two/240 Rule: The income taxes must be at least three years old (g. 2012 taxes were due on April 15, 2013 and thus became dischargeable on April 15, 2016), the returns must have been on file for at least two years (substitute returns normally do not count), and the tax must not have been assessed in the last 240 days (i.e. the taxpayer has not received a letter in the last nine months). The time rules are extremely strict, and bankruptcy courts have been known to deny discharge based on an event that occurred one or days too early or too late.

Penalties and interest are generally dischargeable as well, if they are related to an income tax debt that’s discharged and they are at least three years old.

Effect of Discharge

Although a debt is legally forgiven, the direct effects sometimes remain. Assume David Debtor has an unpaid tuition bill from good ol’ State U. If David files bankruptcy, the school cannot attempt to collect the debt and the debt is probably dischargeable, but State U. may still have the right to withhold David’s transcript until the account is paid or otherwise resolved.

The same rule applies to taxing authorities. If the IRS/DOR obtained a lien against unpaid income tax, bankruptcy forgives the debt but does not release the lien. Similarly, the automatic stay does not stop all tax collection proceedings. For example, if David filed bankruptcy in Georgia and owed income taxes to the DOR, that agency could still:

• Offset his tax refund,
• Audit him,
• Assess unpaid taxes and demand payment,
• Issue a notice of delinquency, and
• Demand his tax returns.

The automatic stay has no effect whatsoever if the taxing authority does not receive the proper notice at the proper address.

What About Tax Refunds?

Procedures vary by jurisdiction, but most trustees send letters to all debtors in bankruptcy in the late spring of each year demanding their tax returns for the current year. If the debtor expects an income tax refund from the previous year, such a windfall is typically property of the bankruptcy estate.

Some debtors can amend their petitions and exempt the anticipated refund, or at least a portion of it, using the wild-card exemption, but that is not an option in all cases. Moreover, some of the traditional arguments for keeping cash – like mootness and floating check – are not as effective when dealing with sudden windfalls. Nevertheless, motions for turnover are a labor-intensive process that most trustees want to avoid if possible.

So, most trustees use a cutoff. If the anticipated refund is less than about $1,000, the trustee will normally take no action. Substantially larger refunds may draw adverse action, but the trustee is nearly always willing to accept a portion of the refund as opposed to the whole amount.

To take the first step towards your financial fresh start, contact an experienced bankruptcy attorney in Rome from the Law Office of Jeff Kelly. We have six area office locations.

Many times, this analysis leads to favorable results for debtors (people who file voluntary bankruptcy petitions). Additional vehicles – like fishing boats, campers, motorcycles, restoration cars, and so on – are a good example. If it is newer, the vehicle often has a high loan balance and almost no equity. If it is older, the property often needs substantial work to get it in a salable condition. Moreover, bankruptcy trustees are not salespeople, and they have little or no interest in taking possession of a somewhat beat-up bass boat, storing it, fixing it up, finding a buyer, and doing all the other legwork required. This same analysis often applies to rental homes and other non-exempt property.

But cash is different because it is liquid, has a readily ascertainable value, and requires no storage or fix-up. So, protecting cash is often a priority in both Chapter 7 and Chapter 13 bankruptcies. Essentially, there are two steps in this process.

Who Owns Your Cash?

The moment that debtors file voluntary petitions, all their non-exempt property becomes part of the bankruptcy estate that’s managed by the bankruptcy trustee. So, ownership is an important question.

In practical terms, most people are more like trustees than owners when it comes to cash in DDAs (demand deposit accounts). In a general legal sense, a trustee is someone who has physical possession of property, but must manage it in a way that favors a third party. Debra Debtor may earn $4,000 a month, but nearly all of it goes to pay regular bills and she has very little disposable income. Over the years, some have made the argument that Debra does not “own” the money in her checking account, even though it is in her name. Although this position does have some logical force, courts have consistently rejected it.

A more compelling argument, and one that courts have at least occasionally embraced, is the floating check controversy. Back in Ye Olden Days, when people manually wrote paper checks to pay for almost everything, Debra might write a $1,000 check on a certain day, and it may be several more days, or even several more weeks, before the payee presented the check at Debra’s bank for payment. During that time, the check was “floating,” because although the $1,000 was still in Debra’s account, it wasn’t really hers to spend.

Now, assume that Debra wrote that check on March 1 and filed bankruptcy on March 3, before the check cleared her bank. The trustee might look at the balance on March 3 and think that Debra had $1,000 of non-exempt cash in her bank account, but that money had to stay in the account or else the check would bounce. It is impossible for Debra to get the fresh financial start that the Bankruptcy Code guarantees if she must deal with a hot check case because of her filing.

Many people don’t even have checkbooks anymore, but the idea remains. The 21^st century equivalent is probably auto-pay bills or pre-scheduled ACH debits. Under these arrangements, the bank automatically writes the check on a certain day or the creditor automatically pulls out money on a certain day. So, there may be an extra $1,000 in Debra’s account on March 3 (the filing date), but if there is an ACH withdrawal scheduled for March 4, the money does not belong to her, in the ordinary sense.

Mootness is a related idea. This doctrine essentially states that, in most cases, there must be a live controversy for a judge to decide. Assume Bill and Frank both claim ownership of a house. They cannot agree, and Bill files suit. But before the judge hears the case, the house burns down. Now, the point is moot. It doesn’t matter who owned the house, because the house is gone.

Money in a DDA is a lot like that house. Debra has money in her account before filing, but by the time the bankruptcy judge hears the dispute, the money has been spent on bills. So, it doesn’t matter whether the bankruptcy estate or Debra owned the funds, because they are gone.

Exempting Cash in a Bankruptcy

Under Georgia law, debtors may exempt up to $600 in otherwise non-exempt property, under 44-13-100(a)(6). Additionally, if they do not use the entire amount, homeowners may use up to $5,000 of their homestead exemption for cash or other non-exempt property.

That sounds like a lot of money, and in most cases it is a lot of money, but the math doesn’t always work out favorably. Non-homeowners are obviously limited to $600, and homeowners who have been making on-time payments for more than eight or ten years will almost certainly use the entire homestead exemption.

Failing to report the cash on the schedules is bankruptcy fraud, and the U.S. Department of Justice aggressively prosecutes these cases. “Loaning” excess cash to your sister-in-law so it disappears from your account is also fraudulent. Prepaying regular creditors, like making three mortgage payments in one month, is likewise illegal unless you prepay everyone in proportional amounts.

One of the best ways to handle this situation is to spend excess cash on exempt assets. Put new tires on the car or put a new roof on the house. As long as the transactions were arms-length and market value, there should be no red flags.1414

Your bankruptcy attorney will be able to advise you about other approaches that may save you some money and assets.

Clients often ask me why they should pay for an attorney if all of the bankruptcy forms are available online for free.  The most important reason, especially in Chapter 7, is that a good bankruptcy attorney will fight for you and help you protect your assets.

A Chapter 7 Trustee can challenge your exemption claims.

Understanding how exemptions are applied can get confusing for people who are not lawyers.

People are so crazy about guns around here that Wal-mart won’t let you buy more than two little boxes at a time.  I asked a Wal-mart cashier why I was not allowed to give more of my money to Wal-mart and allow them to make a profit off of me.  She responded that if there were no limit on ammunition sales, they would never be able to keep any in stock because it flies off the shelf so fast.

As a bankruptcy attorney, I often hear my clients ask, “They are not going to take my guns are they?”  For the vast majority of people filing bankruptcy, the answer to this question is no.  I’ve been practicing bankruptcy for over fifteen years and I’ve never seen a trustee take away someone’s guns.

Is there a specific Georgia Bankruptcy Exemption that will protect guns?

The answer to this question is no but don’t get upset just yet.  Georgia has a $5,600.00 wildcard exemption that can be used toward gun values.

If you have a gun collection and are considering filing bankruptcy, you need to ask yourself, “how much are my guns really worth?”  How much cash could you get for them?

The safest way to proceed to is to find a gun appraiser that will write out their valuation of your collection.  For most of my clients, they cannot afford a professional gun appraisal.  A free alternative is to go to a pawn shop and ask how much cash the owner will give you  for your collection.  This will give you a rough idea of the value.  It is important to note that the trustee will ask how you came up with the values of your guns.  The trustee has right to get their own appraisal.  As a consequence, you want to get the most objective evaluation you can before filing.

What is my guns are worth more than what I can exempt?  Does this mean that I cannot file bankruptcy?

You can still file bankruptcy but you need to understand liquidation before filing.

If you are filing chapter 13 and you want to keep your guns, your plan must pay back to the unsecured creditors (credit cards, medical bills, and signature loans) the same amount of money that your creditors would get if your guns were liquidated.  For example, let’s that you have $5,000.00 of exposed equity and owe $100,000.00 to a credit card company, $50,000 in medical bills and $10,000 on a signature loan from a bank. Your  chapter 13 plan must pay a total of $5,000 pro rata to this unsecured class of creditors.

In a Chapter 7 situation, you could file the bankruptcy case but the trustee would take away your guns and sell them.  The trustee would have to write you a check for the value that you were able to exempt and then the rest would be distributed to the unsecured pool of creditors.

Bankruptcy is complicated.  If you are considering filing a case, take advantage of a free consultation and meet with me or one of my associate attorneys.

Other posts you might be interested in reading.

1.  What is Chapter 13?

2. What is Chapter 7?

3. How much does it cost to file?

4.  How do I stop a garnishment?

5.  How do I stop a foreclosure?