“If I file bankruptcy, I lose my property” is one of the most persistent bankruptcy filing myths. But most people keep most of their property when they file bankruptcy. In fact, Georgia’s formal bankruptcy exemptions, which are mostly listed in Section 44-13-100 of the Georgia Code, are some of the broadest property exemptions in the country. Unless you file, your house, car, and other property could be subject to liquidation.
Bankruptcy does more than protect your property. It also discharges most unsecured debts, stops foreclosure or other creditor adverse actions, and gives debtors a chance to repay past-due obligations on their own time and on their own terms.
There are some other benefits as well, such as some property exemptions which are not listed in the Georgia Code. Anyone can read about the formal exemptions, but only an experienced Athens bankruptcy lawyer knows about available hidden exemptions. Furthermore, only an aggressive attorney knows how to leverage these exemptions for your benefit.
Best Interests of Creditors
Generally, the trustee (person who oversees the bankruptcy case for the judge) may seize nonexempt property, liquidate it, and distribute the money amongst creditors. For the most part, “nonexempt assets” include luxury items, like vacation homes and private airplanes. But this category also includes items of lesser value. In fact, pretty much everyone reading this post has at least one luxury item in a closet, pantry, or garage.
To the individuals who own them, property items usually have an emotional value which far exceeds the financial value. But to bankruptcy creditors, the financial value is all that matters. This figure is also at the heart of the best interests of creditors rule.
Assume Henry owns a small speed boat which the written exemptions do not protect. In his filing documents, Henry states the boat, which is old and needs some minor repairs, is worth $500.
Since it’s not exempt, the trustee makes plans to seize Henry’s boat. The trustee calculates that the boat would fetch about $300 at an auction. According to government rules, an item’s quick sale value is 80 percent of its fair market value. The trustee also estimates that auction fees, storage costs, and other sales expenses would be another $300.
A seizure and sale is not in the creditors’ best interests under these facts. This process would produce little or no money. The estimated expenses are as high as the estimated sales price. In fact, there is a good chance that the creditors could lose money on this proposition.
We mentioned fair market value above. Most debtors assume that, when they list property values on Schedules A and B, they must list the current fair market value. However, the Bankruptcy Code allows an Athens bankruptcy lawyer to list an item’s as-is cash value, which is also known as its garage sale value.
Your home is a good example. The as-is cash value might only be a fraction of its fair market value. Most home investment companies only pay pennies on the dollar for a no-inspection cash sale. The impact could be significant because Georgia has a limited home equity exemption. Pete’s $100,000 home might have an as-is cash value of $20,000, or even less.
Read: How To Decide Whether to File for Bankruptcy
This informal exemption often applies in cash property matters, such as money in a savings account. Technically, these funds are usually nonexempt. So, the trustee usually files a motion for turnover. If the judge grants this motion, the debtor must “turn over” the disputed property, which in this case is the cash, to the trustee.
Here’s how mootness works. Assume Frank and Jesse each claim they own a horse. Since they cannot agree, Frank (the somewhat more law-abiding of the two) files a legal action. Before the judge hears their arguments, the horse dies. At that point, it does not matter who owned the horse, since the horse is dead. In situations like these, courts cannot enter orders which are basically theoretical.
The same principles arguably apply to cash in a bank account or similar property. Trustees never file legal motions until they fully review the paperwork. That process could take several weeks, at a minimum. So, by the time a trustee files a turnover motion, the disputed money has probably been spent. At that point, it doesn’t matter who owned it, because the money is gone.
Please be aware that this article was written and published in conjunction with the help of Gorilla Webtactics, Law Firm Marketing Agency, and does not contain legal advice. Please do not act or refrain from acting based on anything you read in this article.
About the Author
Lee Paulk Morgan is a principal attorney in Morgan & Morgan, Attorneys at Law, P.C. He is an active member of several state and national bar associations. In addition to consumer bankruptcy, Lee practices workers’ compensation and disability law. Click here to learn more.