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Georgia Bankruptcy: Potential Problems in a Hot Housing Market for Chapter 7 Filers

The pandemic has caused financial hardship for many

With the pandemic, many Georgia households are suffering financial insecurity. People may have lost employment or have had their employment hours reduced. Many people are facing unexpected medical treatment, which may not be covered by insurance. Some people have had to turn to credit cards to make ends meet.

Chapter 7 or Chapter 13?

There are many reasons that someone may consider filing bankruptcy. One of the factors that should be considered is what type of bankruptcy is appropriate. Currently, in Georgia, there are two types of consumer bankruptcy: chapter 7 bankruptcy, where your unsecured debts are discharged without repayment, and chapter 13 bankruptcy, where some percentages of debts are repaid.

Most people would prefer to file a chapter 7 bankruptcy as it is a quicker and easier process. However, you must qualify for a chapter 7. There are three main factors in considering whether you will qualify for chapter 7. First, your income must be at or below median for your household size. Second, you must pass the means test which examines your income and expenses as compared to IRS averages to determine whether you have the ability to repay your debt. Finally, you must examine the things you own to see if you are allowed to keep them under your state's exemption rules.

The Difficulty of Filing Chapter 7 Is a Hot Housing Market

One reason people are having difficulty filing chapter 7 bankruptcy is caused by the current hot housing market. Due to high demand (and fueled by low interest rates), houses are being sold after a short period of time on the market and often for above listing prices. This is driving the value of most real estate up. This is good news for homeowners looking to sell but bad news for Georgia debtors. The exemption for a single homeowner in Georgia is $21,500, meaning a single person's home can not have equity in excess of $21,500. That amount is doubled for a married couple to $43,000.

How Does a Bankruptcy Trustee Value a House? And What if the Value Is Wrong?

Trustees look at on-line valuation sites, such as Redfin and Zillow, to determine the value of real estate. These sites look at comparable sales to determine value. When considering bankruptcy, you must know the value of your property. You should investigate the comparable sales in your neighborhood. Are they for the same or similar floor plans? Do they have the same upgrades? Do they have the same amount of property. The obvious way to combat an inappropriate on-line valuation would be to get an appraisal of your property. Most trustees will accept an independent appraisal as an appropriate fair market value. If an appraisal is too expensive, a debtor can obtain a broker opinion or comparative market analysis, which is often free but trustees value these reports less than appraisals. Also, a homeowner can get a home inspection and estimates for the cost of necessary repairs which effects value. It is not a reach to think that regular home maintenance would be deferred if the homeowner is unable to pay for the repairs.

What Next?

If your property's equity is above the exemption amount, you should consider the option of filing a chapter 13 bankruptcy. If you believe you are unable to afford a chapter 13 bankruptcy, other options are to wait for a market correction or attempt debt resolution outside of the bankruptcy court.

When you need debt relief, call us directly at (678) 712-8561.

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