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BANKRUPTCY EXEMPTIONS: WHAT CAN I PROTECT WHEN I FILE MY CHAPTER 7 BANKRUPTCY CASE IN GEORGIA?

A common concern among individuals filing for a Chapter 7 bankruptcy  is that they may lose some of their property to the bankruptcy “estate”.  The bankruptcy estate consists of property that the debtor owns at the date of filing, and in some instances that property can be liquidated for the benefit of the creditors.  One of the primary purposes of any bankruptcy consultations is to ascertain all property owned by a potential client, and make sure that the property can be “exempted” from the bankruptcy estate.  Property values are based on what the property could be expected to sell for in its current condition, and not the replacement value or purchase value.  Exempt property is protected, meaning that the debtor does not have to fear losing the property to a Chapter 7 trustee who will liquidate for the benefit of the creditors.

While the following is not a complete list of the available exemptions under Georgia law, it does include the assets/property which most commonly arise in a bankruptcy case:

Can I protect my house?  Georgia law allows a single homeowner to exempt $21,500 of the equity in their house.  The exemption doubles to $43,000 for married homeowners residing in the property.  A house with equity less than these amounts cannot be liquidated by the trustee.  Cost of sale is also considered in calculating equity for purpose of claiming the exemption.

Can I protect my car?  Georgia law allows a $5000 exemption for equity in an automobile.  If the vehicle is jointly owned by two debtors filing for bankruptcy, then the exemption doubles to $10,000.  In addition, this exemption can be spread among multiple vehicles, instead of confined to just one asset like the homestead exemption.

Can I protect my retirement or pension plan?  Yes.  A defined benefit plan such as a federal/state/local retirement plan, where benefits are based on length of service, is entirely exempt.

Can I protect my privately-funded retirement plan, such as an IRA or 401(k)?  Yes, provided that there has been a history of contributions.  The funds are entirely exempt as long as they are reasonable to support the debtor at the time of retirement.  It is exceptionally rare to come across a 401(k) plan that has been overfunded, and may not be considered entirely exempt.

Can I protect my right to receive social security or disability benefits?  Yes.  These benefits are entirely exempt, and cannot be taken for the benefit of your creditors.  The 100% protection applies to worker’s compensation benefits as well.

Can I protect my right to bring a lawsuit, such as for a motor vehicle accident or malpractice claim?  You can protect such a claim, but may not be able to protect the entire amount.  The maximum exemption allowable for a claim based upon bodily injury is $10,000.  However, this exemption only applies to the debtor’s portion of the recovery.  The actual recovery may be higher, but the debtor is allowed a deduction for attorney’s fees and legal expenses associated with the claim.

Can I protect my household goods and appliances?  Yes.  There is a $5000 exemption which covers all household goods and appliances, with a limit of $300 on any particular item.  But as a practical matter, used household goods are unlikely to generate any money for unsecured creditors, and challenges to the exemption of household goods or appliances worth more than $300 are rare.

Can I protect my tools and other equipment that I use to earn a living? A debtor can protect $1500 of tools and equipment used for their trade or profession.  This exemption can be used together with another exemption – such as for an automobile – if the debtor uses the automobile in their trade.

What if there is not a specific exemption for the property that I wish to protect?  Georgia law does allow for a “wildcard exemption” in an amount not to exceed $5600, which can be applied to any property that the debtor may own.  The amount of this exemption will be different for some debtors, depending upon whether or not they own real estate.  The “wildcard exemption” can be used to supplement a specific exemption, such as for an automobile or tools of the trade.

The important thing to remember in meeting with an attorney for a bankruptcy consultation is to provide full disclosure of all assets, with an accurate assessment of their value.  Filing a bankruptcy petition requires the disclosure of all assets.  If the assets are not disclosed, then they cannot be exempted.  In the event that a bankruptcy case was filed, your ability to keep an undisclosed asset may be jeopardized, even if it was something that could have been exempted if disclosed originally.  Likewise, never transfer assets on the eve of filing bankruptcy without consulting with your bankruptcy attorney.  In addition to listing all of your assets in your bankruptcy petition, you will also need to list all transfers of property.  Failing to list the transfer of an asset could result in the Chapter 7 trustee bringing an action against the party who received the asset, forcing them to turn it over to the bankruptcy estate.

If this sounds complicated, it’s because it is complicated. The biggest mistake made by individuals filing for bankruptcy on their own is to fail to list assets, or fail to exempt them.  With full disclosure, a bankruptcy attorney can guide you through the bankruptcy process and allow you to retain all of your assets.  If Georgia exemption law will not allow you to protect all of your assets, then a bankruptcy attorney can advise you of other routes that would allow you to manage your debt, yet at the same time protect your assets (such as a Chapter 13 bankruptcy).