It's not easy deciding on whether to file bankruptcy. There's no magic formula to tell you if it's right for you. However, if you're overwhelmed with credit card and other debts or facing foreclosure, and you've tried all other options, bankruptcy may be your best and only chance at a fresh start.

You need to know some basics of how the process works. For the most part, bankruptcies are controlled by federal law, the Bankruptcy Code. State laws may also play a big role, especially on your decisions about whether or not to file and which type of bankruptcy is best for you.

Starting Out and Bankruptcy Options

There are two main types of bankruptcy cases individuals use, Chapter 7 and Chapter 13. Both give you relief from your debts and a fresh financial start through discharge, the court's order ending your liability to pay and your creditors' ability to collect.

Chapter 7

Chapter 7 is also known as "straight bankruptcy," and it's the most common type of case. Someone who uses Chapter 7 has few or no assets available to pay creditors, and the discharge applies to most debts. Discharge means your debts are waived or dismissed.

Key points to know about Chapter 7 are:

• You must qualify to file Chapter 7 based on your income and a means test set out in bankruptcy law. If you can afford to repay a portion of your debts, you may have to use Chapter 13
• Your available assets, called nonexempt property, may be sold by the bankruptcy trustee to pay your creditors
• You keep exempt property, which is protected from your creditors' reach
• The Chapter 7 discharge applies to most common debt types, including credit cards and medical bills

Most Chapter 7 cases are "no-asset," meaning there's nothing left to pay creditors after accounting for your property exemptions. State or federal law control property exemptions, and this is why bankruptcy cases can be different from state to state.

Chapter 13

Chapter 13 reorganizes your debts: You make partial or full payments according to a repayment plan, and remaining debts are discharged at plan completion. If you have a certain amount of stable disposable income after paying for the basics, Chapter 13 may be your only bankruptcy option.

The repayment plan is the main part of a Chapter 13 case and property exemption laws factor into figuring out repayment plan details.

Here are some common situations behind Chapter 13 cases:

• You have mortgages or loans you want to bring current through the repayment plan, allowing you to keep the property
• Your debts are ineligible for a Chapter 7 discharge, such as taxes, child support or student loans
• You're driven to pay off debts by personal values or morals

This type of bankruptcy strikes a middle ground between you and your creditors. You get some debt relief, and creditors get some payment.

Georgia Law and Property Exemptions

You can only claim property exemptions given by Georgia state law. There's no choice to use state or federal exemptions, as there is in some states. Exemption amounts can change, and are found in the state code.

Georgia statutes have a full list of exempt property and value limits. Here are some key exemptions:

• Your home up to $10,000, or up to $20,000 if you and your spouse file bankruptcy jointly (this is the homestead exemption)
• Household furnishings and goods, clothes, appliances, books, animals, crops and musical instruments up to $300 in value per item and up to $5,000 total
• Jewelry up to $500 in total value
• Social security, unemployment compensation, local public assistance, workers' compensation and veterans' benefits
• Alimony, support or separate maintenance as needed for support
• Pensions and individual retirement accounts
• Professional books and tools of your trade up to $1,500 in value
• Payment under a life insurance contract on the life of a person you were dependent upon as needed for support
• Any unmatured life insurance contract except a credit life insurance contract

Your homestead exemption amount may be limited if, shortly before filing bankruptcy, you moved to a state with a very high homestead exemption. Bankruptcy law bars moving just to use a state's property exemptions, or even to defraud creditors on purpose.

Exemptions do cover many types of personal items, such as clothing, but the exact exemption amount may not matter. It's unlikely a bankruptcy trustee would try to sell them because it's not practical and probably won't raise substantial funds to pay your creditors.

Property exemptions can have a big impact on your decision to file for bankruptcy. For example, if your major assets are exempt, and your debts qualify for discharge, Chapter 7 may be the right choice for you. Every case is different, and a bankruptcy attorney can help you review your facts and decide which bankruptcy option is best.

Related Resources on Lawyers.com^sm

- Contact a Georgia Bankruptcy Lawyer in your area for specific legal advice, and read about Selecting a Good Bankruptcy Lawyer
- Need a form? Access a variety of do-it-yourself business and personal legal forms that meet your needs
- Read Braving the Bankruptcy Process and To File for Bankruptcy or Not: Factors to Consider, or access more Bankruptcy articles and information
- Visit the Legal Forums for discussions on Bankruptcy Law topics
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- Legal Dictionary

Related Web Links

- US Bankruptcy Courts