What should I know about Chapter 7 bankruptcy?

Authored By: GeorgiaLegalAid.org
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Chapter 7 bankruptcy

Chapter 7 bankruptcy laws


What is Chapter 7 bankruptcy?

In a Chapter 7 bankruptcy, your debts are “discharged” or wiped out. Chapter 7 bankruptcy is also known as a liquidation bankruptcy. Any property you own which is not “exempt” may be sold by the trustee to pay your creditors. Once any property is sold, your debts are forgiven. 


Most people who decide to file bankruptcy under Chapter 7 do not own any property above the exempt property they are allowed to keep. Get advice from a bankruptcy attorney to make sure you don’t have any assets that you could lose in a Chapter 7 case.


What property is exempt?

You may keep certain property that the law allows you to claim as exempt. In Georgia you are allowed to keep: 


  • $21,500 worth of equity in your home (for a single person – the amount is doubled for a married couple). 

  • Your vehicle if you have no more than $5,000 worth of equity in the car. This means the value of the car minus any secured debts you owe on it, like a car loan, is not more than $5,000.

  • $5,000 worth of household goods and furnishings, and 

  • An additional $1,200 “wildcard” exemption to protect any other kind of property, like cash or investments.

    • If there is any unused amount of the homestead exemption amount, you may use up to $10,000 to protect other property. 


What debts does Chapter 7 bankruptcy cover?

A Chapter 7 case is mostly used to discharge, or get rid, of unsecured debt such as credit card debt and medical expenses. A Chapter 7 will also allow you to discharge secured debt. A secured debt is where a creditor has a lien on your property, such as a home mortgage or a car loan. However, the lien will survive the bankruptcy. If you are behind on your payments for secured property, the creditor will still have the right to take back the property even though you have filed. If you are current on your secured debt, you may simply ask the court to allow you to continue paying the debt.

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What are my rights in Chapter 7?

You have the right to file for Chapter 7 bankruptcy once every eight years. Because of this, it is a good idea not to file a Chapter 7 bankruptcy until your situation starts to improve. For example, if your income is going back up after a dip and you don't expect to take on any new debt in the future. You must qualify for Chapter 7 or your case will be thrown out. To qualify, you must do one of the following:

  • Have an income below the Georgia state median income, or

  • Pass a “means test.” Under Georgia bankruptcy laws, the means test looks at your debts, income and reasonable expenses, and decides how much money you’ll have left over to pay your debts.

  • Be exempted from the means test. You do not have to pass the means test if:

    • Your debts are not primarily consumer debts, 

    • You are a disabled veteran, or

    • You incurred your debt during active military service


What if I don’t qualify for Chapter 7?

If you don’t qualify for Chapter 7, your case may be converted to a Chapter 13 bankruptcy if you have enough income to repay some of your debts. 

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What are my responsibilities in Chapter 7?

You are responsible for gathering all of your financial information and presenting it to the court in your bankruptcy case. You must follow the rules and procedures of the bankruptcy court during the bankruptcy proceedings. You are strongly encouraged to consult a bankruptcy attorney. The court will reject your bankruptcy petition if you do not follow the rules, whether you have an attorney or not.

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How can I file for Chapter 7?

Filing for bankruptcy is a complicated process. You should talk to an attorney before filing. If a court dismisses your case because you did not file correctly, you may be banned from filing again for a period of time. The general steps to filing a Chapter 7 bankruptcy are:

  1. Within 180 days before filing for bankruptcy, you must participate in credit counseling. Counseling must be with an approved credit counseling agency. You must file: 

    1. a copy of your certificate of credit counseling and 

    2. a copy of any debt repayment plan with your petition for bankruptcy.

  2. File a petition with the bankruptcy court where you live. There are many forms must fill out. You must provide information about your financial situation, including:

    1. A list of all creditors and the amount and nature of their claims;

    2. The source, amount, and frequency of your income;

    3. A list of all of your property; and

    4. A detailed list of your monthly living expenses. This includes food, clothing, shelter, utilities, taxes, transportation, and medicine.

  3. You must pay the filing fees ($245 case filing fee, $75 administrative fee and a $15 trustee fee). You may apply to pay these fees in installments, or if you are unable to pay, the court may waive the fees entirely.

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What happens after I file for Chapter 7?

  • Automatic Stay. Filing a petition will automatically stay most collection actions. The stay is like a protective shield that goes up around you at the moment the bankruptcy case is filed. While the stay is in place, creditors are not allowed to: 

    • attempt to collect against you or 

    • take your property unless they first get permission from the bankruptcy court. 


If you’ve been sued or garnished, any action being taken against you has to stop, unless the creditor gets permission from the bankruptcy court. 

  • Trustee Appointed. After your petition is filed, you will be assigned a case trustee to handle your case and liquidate any nonexempt assets to pay your creditors.

  • Meeting of Creditors. Between 21 and 40 days after you file your petition, your case trustee will hold a meeting of your creditors. During this meeting, you will be put under oath and the trustee and any creditors who attend can ask questions. You must attend this meeting.

  • Discharge. Unless a creditor objects, your case is dismissed or converted to another type of bankruptcy, the court will order a discharge of your debt. If you wish to reaffirm or keep any of your debts, you must do that before the court enters the discharge.


What is reaffirmation?

After filing your bankruptcy case, you may want to repay a particular debt or you may be asked by a creditor to pay a debt. If you decide that you want to pay any specific debt that otherwise would be discharged, you may be required to file a reaffirmation agreement.


Under a reaffirmation agreement, you agree to pay a debt even though you could have eliminated the debt in your bankruptcy case. Reaffirmation agreements are strictly voluntary. When you reaffirm a debt, you continue to be legally responsible for paying it back. This gives the creditor some legal rights. For example, if you have a car loan and miss a payment in the future, the creditor can do any of the following things: 

  • repossess the car; 

  • sell the car to someone else; and 

  • sue you for all the money you still owe on the car (the deficiency balance).


When you reaffirm a debt, that debt is treated as if you never filed a bankruptcy case and such debt is not forgiven. This can have serious financial consequences. Therefore, reaffirmation agreements must not impose an undue burden upon you or your family and must be in your best interest. It is wise to consider all of your options before entering into a reaffirmation agreement.

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Can I save my car in Chapter 7?

If your goal is to save your car, a Chapter 7 case is usually not very helpful. First, if you are already behind on the car payments, a Chapter 7 does not give you a chance to catch back up. In those cases, the lender will typically ask the bankruptcy court for relief from the stay in order to repossess the vehicle. Or, the lender will just wait for the case to end, and then repossess. 


If you are not behind on the payments, then you have two options to keep the vehicle in a Chapter 7. 


  • One option is to reaffirm the loan. A reaffirmation allows you to keep the car, and continue making payments under the loan. However, this option is not going to make the loan any more affordable than it was before you filed bankruptcy. 

  • A second option is redemption, which allows you to pay off the loan by paying only the value of the vehicle (rather than the loan balance). The redemption option can be useful if you owe more money on your car than it is worth. It is often difficult to come up with the sum of money necessary to redeem. 

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Can I save my house in Chapter 7?

Chapter 7 case will only stop the foreclosure sale temporarily. After a few months, if you are behind on your mortgage, the bank will get permission to foreclose (or wait for your case to end, and then foreclose).


If you successfully complete a Chapter 7 case, you will wipe out your personal liability on the mortgage. This means that even if the foreclosure sale doesn’t cover the full balance owed on the loan (leaving a “deficiency”), the creditor cannot try to collect any money from your bank account or your wages. However, the mortgage creditor will still have a lien on your house – an interest in your house that gives the bank the right to foreclose if you don’t pay. That interest, or lien, stays in place during a Chapter 7 case. Therefore, most people who file Chapter 7 bankruptcy will not be able to save their home. You could possibly save your home if you are current on the mortgage or can get caught up quickly.

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How can bankruptcy help me if I’m being sued by a creditor?

If you have been sued by a creditor, or are being garnished by one, a bankruptcy can usually help to stop this process. Here’s what you need to know about the protections of bankruptcy, if you have been sued or are being garnished.  


In order to get the fastest protection from the automatic stay you should rile a document called a Notice of Bankruptcy Filing. File the notice in the court where the lawsuit or garnishment action is filed. This document can be very short; it simply needs to state that you have filed for bankruptcy, and include your case number. This puts the creditor and the other court on notice that you have entered the protection of bankruptcy. 

If you’ve been sued, but the creditor does not have a judgment 

If you file for bankruptcy while a lawsuit against you is still going on, the creditor cannot get a judgment against you without permission from the bankruptcy court. If the lawsuit against you is an ordinary debt collection lawsuit, it is very unlikely that the creditor will continue to go forward. The debt will be considered “unsecured,” because there will not be a judgment locking it into place. This means that as long as it is listed in your bankruptcy schedules and proper notice is given to the creditor, the debt will be discharged. There are a few categories of debt that are not allowed to be discharged, which are explained further below. 


If the creditor has a judgment, but there is no garnishment 

If you have one or more judgments against you, there is an extra step that will need to be taken before the debt is completely eliminated through the bankruptcy. This extra step is called a Motion to Avoid Judicial Lien. When a creditor gets a judgment against you, a lien is created against your property and earnings. To get rid of that lien, the bankruptcy court needs to issue an order stating that nothing you earn or own is subject to that lien anymore. That is what the Motion to Avoid Judicial Lien asks the court to do. Usually, creditors do not object to these Motions, as long as the debtor has listed all their property as exempt (which means the value of it is below a certain amount). 


If the creditor has started a garnishment 

If you are being garnished by a creditor before you file for bankruptcy, this should stop as soon as the case is filed and the creditor receives notice. If it does not stop, this is a violation of the Automatic Stay, and the bankruptcy court should be made aware of this immediately. In some cases, you will be able to get back some of the money that has been taken. If more than $600.00 has been garnished from you within 90 days of filing your bankruptcy case, you can recover that money. This will not happen automatically. Your lawyer will have to take steps such as: 

  • marking your garnished wages “exempt” in your bankruptcy schedules and 

  • contacting the creditor, to be sure that you get the money back.

  • Filing a Motion to Avoid Judicial Lien, since most creditors must have a judgment in order to get a garnishment. 

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Tips & Terms


Unsecured debt: A loan that is not secured by an asset (like a car, house, electronics). Unsecured debt includes credit card debt, medical bills and utility bills.


Secured debt: A loan that is backed by an asset (like a car, house, electronics). If you default on a secured debt, the creditor can seize the asset and sell it to pay off the loan. 


Debtor: A person or company who owes money.


Creditor: A person or company to whom money is owed.

Discharged debt: The cancellation of a debt during bankruptcy. If a debt is discharged, you no longer owe the debt.

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Last Review and Update: Apr 26, 2022
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