If you have lived in the Peachtree State for at least two years when you file Chapter 7 or Chapter 13, you make take advantage of the state’s generous bankruptcy exemptions. If you recently relocated from another states, you can probably file bankruptcy in Georgia, but you must use the other state’s exemptions.
Property exemptions are an important part of a bankruptcy case. If debtors lose their property when they file, they do not get a fresh start, which is what the Bankruptcy Code guarantees. Instead, they must go back behind the starting line. As outlined below, there are formal and informal bankruptcy exemptions.
Unfortunately, many people are unable to take full advantage of these exemptions. They file their own bankruptcy petitions or use non-lawyer bankruptcy petition preparers. They believe these partnerships will save money. Ultimately, however, DIY and BPP filings usually cost money, because these filers miss out on exemptions.
It’s like filing your own taxes. Sure, you do not have to pay an accountant. But you probably miss out on some little-known deductions that only accountants know about. If you have a diligent Georgia bankruptcy lawyer, you do not miss these unseen opportunities and legal loopholes.
Formal Bankruptcy Exemptions
Some states allow debtors to choose between federal and state exemptions. These lists are similar, but there are some differences. Georgia does not give debtors this option. However, for the most part, Georgia’s bankruptcy exemptions are better than the federal exemptions anyway.
Homestead ($21,500)
Your homestead is your primary residence, whether it is in the city or the country. A homestead is usually, but not necessarily, a house. It could be a duplex, a condominium, or even a fifth wheel.
The $21,500 exemption refers to the amount of equity in the home and not its fair market value. Home loans are amortized, which means owners pay interest before they pay principal. So, unless you have lived in your home for more than half the loan period, you probably have very little home equity, even if you have paid tens of thousands of dollars.
Married couples who file jointly may double the homestead exemption, as well as the other formal bankruptcy exemptions listed below.
Motor Vehicle ($5,000)
You may use the entire exemption on one vehicle, or you may spread it out among several. Any powered vehicle is usually a motor vehicle. Bicycles and other such items are usually personal property.
The aforementioned home equity principles also apply in these cases. If you have a new car, you probably have almost no equity in it. Used cars often have 100 percent equity, but they are usually not worth very much, especially if they have been in minor accidents or need work.
Retirement Account (100 percent exempt)
Aside from a home, a retirement account is usually a family’s largest financial asset. These accounts also have significant emotional value. They represent reward for savings and future financial security.
401(k)s, IRAs, and other defined contribution accounts are completely exempt in bankruptcy. So are pension plans and other defined benefit accounts.
On a related note, government benefits, such as Social Security benefits, are usually exempt. So are life insurance proceeds.
Personal Property ($23,000)
This exemption amount usually refers to an items as-is cash value, or its garage sale value. Furniture, jewelry, electronics, and other household goods usually have almost no as-is cash value. A $2,000 TV might fetch $200, or even less, in a garage sale. This category also includes personal injury, workers’ compensation, and other such awards.
Furthermore, Georgia has a wildcard exemption. Petitioners may protect up to $12,200 of otherwise nonexempt property, such as a vacation home or a boat.
Informal Exemptions
There are a number of unwritten exemptions in Georgia. Most of them involve the mootness doctrine or the best interests of creditors rule.
Assume Claire applies the wildcard exemption to a rental home that she owns. The trustee (person who manages the bankruptcy for the judge) objects, claiming that the house is worth too much money. Before the judge hears the matter, the house burns down.
At that point, the issue is moot. Since the house is gone, it does not matter who owned it. So, the court cannot intervene in the dispute.
Now assume Rick owns bass boat which he cannot protect. The trustee estimates that the boat is worth $1,000 on the open market. The trustee also estimates that repairs will cost $500 and sales costs, mostly storage expenses, will be an additional $500.
Arguably, the trustee cannot legally seize Rick’s boat, even though it is nonexempt. Its seizure and sale would generate little or nothing for creditors. So, these actions would not be in their best interests.
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