Will I lose everything if I file for Bankruptcy?
The thought of losing your possessions because you are filing a bankruptcy case scares many people. Many also have private 401(k) accounts, government retirement accounts and personal private pensions or other investments that they think will get seized and used to pay creditors. The idea that this money may be lost is a real concern of clients. There is good news though, when you file a bankruptcy case, the courts allow you to exempt some of your property such as a portion of your real estate equity, your personal property and your retirement money. Much of this is safe and sheltered from the reach of the Bankruptcy Court by virtue of a Georgia law called the exemption law. The Georgia exemption law sets out specifically what you can protect if you file a bankruptcy.
The Georgia exemption law may be found at the Official Code of Georgia Section 44-13-100.
The exemption law provides that certain types of property may not be seized by the trustee or creditors in a bankruptcy. For example, if you own real estate and it has equity in it, the Georgia Exemption Statute provides that the first $10,000 of that equity is exempt. If you are considering filing a joint case with your spouse, the real estate exemption is doubled to $20,000.
Most of your household goods will be exempt, unless you happen to own an item or two that has a high value. The Georgia Exemption Statute allows for $5,000 of household goods such as televisions, furniture, electronics, etc. to be exempt (double this if filing jointly). However, the catch in this is that no one item should be worth more than $300. Thus, a standard 27 inch television is not going to be a problem, but if you happen to own a 52” big screen TV, you may have a problem.
Value of property is determined by looking at what would it would cost to replace the furniture that you are attempting value. All of the trustees in bankruptcy use this as a measure of value. I tend to take a different viewpoint, I usually consider what the item would bring at a garage sale or at auction as many people would not necessarily purchase new furniture to replace the furniture they have. If you are having difficulty in determining what some of your household goods may be worth, go to eBay or the classified ads and see if you can find items that closely match your goods.
A very important exemption in the Georgia Exemption Statute has to do with retirement plans. For those who are worried about this, there is good news here in that that the bankruptcy judges in Georgia have determined that 401(k) plans are exempt as are pensions. The way to gauge this is that if the retirement plan has a penalty for early withdrawal, it is probably exempt. Over the years that I have been helping clients, there have been some who discharged $50,000 of credit card debt but were able to keep their $100,000 401(k) account. You may think this as outrageous, but Congress has considered the arguments of the lending industry vs. the public policy of encouraging personal retirement plans. At this point in time, you get to keep your retirement money.
If you have a vehicle that you have title to, the Georgia Exemption law permits you to exempt $3,500 of equity in that vehicle. So if you have a vehicle that is worth say $2,000, then it would be fully protected. On the other hand, if you have a vehicle that may be worth $10,000, then you will only be able to exempt $3,500 of that value. You may be able to protect the remaining value of the vehicle through another category of the exemption law if available.
One of the categories of the Exemption law is a catch-all that can be used for any property that you own and not protected by the law. If you do not own real estate, then half of the real estate exemption can be used for any and all other property. So that car you said was worth $10,000 and you could only protect $3,500 of it, well, you now have another $5,000 available (double for joint filers). Here is another example, let’s say you have a car worth $15,000 and you owe $7,000. If you deduct the what is owed from the value, you would have $8,000 of equity. Using the $3,500 exemption that is allowed and $4,500 of the catch all exemption category, you can now protect the entire value of the vehicle.
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