On July 1, 2013, Georgia's new motor vehicle bankruptcy exemption amount will become effective. Now, Georgians may exempt up to $5,000 on their automobiles in bankruptcy. This is a $1,500 increase over Georgia's previous exemption limit of $3,500. Such a change may make bankruptcy a more attractive option for those individuals that have built some equity in their cars.
To better understand how this change will affect individuals, it is first necessary to have a general understanding of how exemptions work. When a person files for bankruptcy, his or her property is considered when deciding how creditors will be treated. Lawmakers have decided that it would be unfair for a person's debts to be discharged if he or she owns a substantial amount of property that could be used to pay off those debts. Under a Chapter 7 bankruptcy, a person's property may be sold off to pay off debts owed to creditors. This is known as liquidation. However, since bankruptcy is meant to provide a person with a fresh start, the law takes into account the difficulty a person would have in starting completely from scratch. For this reason, bankruptcy laws allow a person to keep certain amounts of their property. The property a person gets to keep is called an exemption because it is exempt from being used to satisfy debts.
There are many different categories of exemptions that a person can use to keep his or her property. In fact, in most Chapter 7 bankruptcies, an individual gets to keep all of the property he or she owns because it is all exempt. For secured property, such as a car or house, bankruptcy law only considers the filer's interest in the property. Therefore, if the amount owed on a vehicle is greater than what the car is worth, then the owner has no equity and the car is worth nothing in the bankruptcy. As long as the person filing bankruptcy keeps paying his or her car payment, he or she should be able to keep the car. If the car is worth more than what is owed, however, there is equity in the car. This value is what can be exempted. Thanks to Georgia's new law, the value that may be kept is now greater. As long as the equity or value of the car is less than $5,000, the bankruptcy trustee will not be able to sell it.
Even if the equity in the vehicle is greater than $5,000, there are many options available which would allow a person to file bankruptcy and still keep his or her car. There is a "wildcard" exemption which can be added on to the motor vehicle exemption under the right circumstances. Beyond Chapter 7, a person can file Chapter 13 under which no property is liquidated no matter its value. Ultimately, every person's situation is different. The best way to ensure the safety of one's personal property is to get the advice of an experienced bankruptcy attorney. Then, the person can maximize his or her available exemptions and find more relief.
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