Almost everyone who files for Chapter 7 has some fear that the trustee is going to take away some important possession. The truth is that Georgia bankruptcy exemptions protect almost everything that a normal family owns. However, there are a few exceptions.
1. Repayment of a loan to a family member- This is the Chapter 7 trap that catches the most people.
The trustee will start off by asking, “How much was your tax refund last year?”
“Three thousand dollars” responds the person who filed.
“What did you do with the money?” the Chapter 7 Trustee asks again.
“I gave it all to my mother,” responds the person who filed.
“Why did you give it all to your mother?” the Chapter 7 Trustee asks.
“Because I owed her the money,” responds the person filing.
In the situation described above, the Chapter 7 Trustee will be suing the mother for all of the money that her child paid to her. In the bankruptcy world, this is called a preference. Once the Chapter 7 Bankruptcy Trustee recovers all of the money that was paid to mother, he will then distribute it evenly among all the bankruptcy creditors.
2. Transfer of property to a family member- This one usually happens because a person filing bankruptcy decided to take legal advice from some coworker that knows absolutely nothing about bankruptcy.
In every Chapter 7 bankruptcy case filed in Northwest Georgia, the Trustee is going to ask, have sold or transferred anything of value within the last two years. If you lie, you will be guilty of perjury which will land you in jail. If you have transferred something to a family member for little or no money, the trustee has the power to take it back.
The most common scenario involves “family land.” Someone has land in their name that has been in the family for the two hundred years. To protect it from creditors, they transfer the land to a cousin. What they don’t realize is that the Chapter 7 trustee has the power to undue the transfer and sell the property for the benefit of the creditors.
3. Life estate that was not properly valued- I am shocked at how many people in Northwest Georgia own life estate interests. Again, this usually involves family land. For example, grandma has the legal right to live in a house until the day she dies. Upon her death, the house transfers automatically a person who is filing bankruptcy. What many people don’t realize is that the Chapter 7 Bankruptcy Trustee can sell the interest in the life estate to some crazy investor who is willing to bet the either grandma won’t live there that much longer or that some other relative will come along and try to buy out his interest.
Chapter 7 bankruptcy can get extremely complicated extremely fast. Many nightmare situations like the examples listed above can be avoided with a Chapter 13 case. If you would like to schedule a free consultation with my office, I would be happy to sit down with and review your entire situation. Call today at 706-295-0030.