To answer this question, we must first explain a secured creditor and a bankruptcy exemption.
What is a Secured Creditor?
A secured creditor is a creditor that holds collateral for the debt you owe. For example, a creditor that holds a lien on your vehicle to secure the money you borrowed from the creditor is considered a secured creditor. By law, if you do not pay the debt owed, a secured creditor can repossess the collateral and sell it to satisfy the debt owed to the creditor.
What is a Bankruptcy Exemption?
The Bankruptcy Code provides certain exemptions a debtor can claim to protect the equity in certain property. For example, as of 2017, the federal bankruptcy exemption for a vehicle is $3,775. In other words, you can protect up to $3,775 of the equity in one vehicle you own from your creditors and the bankruptcy trustee under the federal exemptions.
However, some states choose to set bankruptcy exemptions for the state. Georgia is one of those states. You must use the bankruptcy exemptions set by the Georgia Legislature. Currently, Georgia allows up to $5,000 for an exemption in a vehicle. Furthermore, Georgia has a wildcard exemption that you can apply to the equity in your vehicle too. The wildcard exemption is $1,200 and up to $10,000 in unused homestead exemption (the exemption you are entitled if you own a home).
Our Alpharetta bankruptcy lawyers review the equity in your vehicle to determine if the Georgia bankruptcy exemptions protect before filing your bankruptcy petition.
Vehicles in a Chapter 7 Bankruptcy Case in Georgia?
There are two fundamental issues to address when filing a Chapter 7 bankruptcy case in Georgia. The first issue is whether a vehicle has equity that may not be protected by bankruptcy exemptions. If the trustee determines there is equity in the vehicle, the trustee can sell the vehicle and use the sale proceeds to pay unsecured creditors. Therefore, we perform a calculation to determine equity:
Fair Market Value
- LESS Amount of Secured Lien
EQUALS Net Equity
If the net equity is below the exemption, the vehicle is protected from the trustee.
However, that is not the only issue we must address. To keep your vehicle, you must continue to pay the car loan payments. If you cannot afford the payments, you can surrender (give up) the vehicle in full satisfaction of the debt. Even if the creditor does not receive enough money from the sale of the vehicle to pay the loan in full, the creditor cannot take any legal action against you to collect the remaining amount owed. If you are behind in paying your car loan payments, the lender will expect you to catch up the payments immediately to keep the vehicle.
Vehicles in a Chapter 13 Bankruptcy Case in Georgia?
In Chapter 13, we use the same formula to calculate the net equity in vehicles; however, if the equity exceeds the available exemptions, you do not need to give up the vehicle. We can adjust the plan payment to protect the equity in the vehicle.
Secured creditors are also handled differently in a Chapter 13 bankruptcy case. In most cases, the amount owed on the vehicle is paid through the bankruptcy plan. Debtors usually can lower the interest paid on the debt and the amount of the monthly payment through a Chapter 13 plan.
Furthermore, if the value of the vehicle is less than the amount owed, you might be able to “value” the lien on the vehicle at the market value of the vehicle. In other words, you only pay what the vehicle is worth, not the full loan balance. The remaining balance of the loan becomes an unsecured debt. The same percentage paid to general unsecured creditors is applied to the balance owed on your car loan.
After you complete your plan, the lien is released in full, even though you may still owe money to the creditor. As with a Chapter 7 case, the creditor cannot take any legal action to collect a discharged debt.
Choosing the Best Option for Your Situation
Filing for bankruptcy relief is a serious matter. Our Alpharetta bankruptcy lawyers highly recommend that you consult with an experienced bankruptcy attorney. A careful analysis of your income, expenses, assets, debts, and financial affairs should be completed before you file a bankruptcy petition. Once you file for relief, it may not be possible to simply dismiss your case if something goes wrong.
At Charlton & Glover, we spend time getting to know you and why you may need to file bankruptcy. It is our goal to help you find an affordable solution for debt problems that protects your assets and income while eliminating most, if not all, of your debts.
Call 770-993-1005 to schedule a free bankruptcy consultation. You may also email our office for more information. Our law firm represents clients in Roswell, Alpharetta, and throughout the Northern Atlanta area.