It’s time for all Georgia consumers to smile. Georgia’s governor, Nathan Deal, recently signed a new law that raises the bankruptcy exemption for Georgia residents from $10,000.00 to $21,500.00 for individuals and from $20,000.00 to $43,000.00 for married couples. This is good news for any Georgia consumer that is considering bankruptcy.
In the short run, I don’t think this new law will have any impact on bankruptcy filings. Right now, the housing market in Georgia is so depressed that I almost never see a potential bankruptcy client that has any equity in their home. When housing prices start rising again, bankruptcy attorneys will have to pay closer attention to equity values.
In the past, many Georgia consumers were forced to file Chapter 13 because of equity in their home. For example, let’s say you have an individual who has $20,000.00 equity in their home. Let’s also say they owe $100,000.00 of credit card debt with a twenty five percent APR. In the past, if this individual filed a Chapter 7, the trustee would sell their house, write them a check for the $10,000.00 exemption and distribute the remaining proceeds pro rata to the unsecured creditors.
Or, in the alternative, the consumer could have filed a Chapter 13 and paid an unsecured pool of money that equaled the same amount of money that a Chapter 7 trustee could recover from the sale. To be more clear, we need to look at the numbers. In the example above, the consumer has $20,000.000 equity. If only $10,000.00 could be protected by the housing exemption, the consumer would have to pay at least $10,000.00 to the unsecured pool to make the plan work. The remaining $90.000.00 in credit debt would be completely eliminated in this Chapter 13 scenario.
With Georgia’s new bankruptcy exemption law, the person with less than $21,500.00 in equity in their residence could file Chapter 7 and eliminate 100 percent of their credit card debt.
A married couple with $43,000.00 in equity could file a Chapter 7 and wipe all of their credit card, medical debt, and any other unsecured debt.
I would like to emphasize that home equity is just the beginning of the analysis as to what type of bankruptcy a person should file.
Your bankruptcy attorney needs to review your entire economic picture before he can point you in the right direction.
While I don’t think this new law will make much of a difference in the short run, I think it will ultimately result in more people leaving my office with big smiles.
Please Note: The new exemption laws do not apply to cases that were filed before it went to effect in May 2012. Also, this exemption does not apply to rental houses. It applies only to your residence.