When an individual files a bankruptcy case, they are allowed to claim exemptions to protect their property. Some states allow bankruptcy debtors to use the federal exemptions, while other states, like Georgia, have their own specific bankruptcy exemptions. Keep in mind that these exemptions are different from exemptions that Georgia citizens may use to reduce their property taxes. In Georgia, an individual bankruptcy debtor can claim an exemption of $21,500 of equity in their residential real estate. Married couples to file a joint bankruptcy case can exempt $43,000 of equity in their residential real estate. Prior to the post – Covid housing boom, these exemptions were sufficient to protect the residences of most bankruptcy filers.
Unfortunately, housing values continue to increase steadily meaning that residences that could previously be protected in a Chapter 7 case would now be at risk if the debtor’s equity exceeds the Georgia exemptions. These values increase without any improvements or modifications being performed by the homeowners. There are certain areas in Augusta which have seen significant increases in property values due to revitalization efforts by investors and developers. Long – time homeowners in these areas, some of whom may be on fixed income, are finding that bankruptcy relief is limited based upon the value of their home.
While a debtor has the ability to protect the equity in their home by filing a Chapter 13 bankruptcy case – where they can repay their creditors over a three – five year period – the amount that they must repay will be based on the unprotected equity (the amount of equity that exceeds their exemptions) in their residence. For individuals on fixed income, who are already struggling with their finances, they cannot afford to add a Chapter 13 payment to their existing expenses. This has created a small group of distressed consumers who really have no bankruptcy option, as they would lose their house in a Chapter 7 case and cannot afford to repay the necessary amount of debt in a Chapter 13 bankruptcy. They are essentially at the mercy of their creditors unless they can find a non – bankruptcy option to resolve their debt issues, such as a refinance or reverse mortgage.
Fortunately, the Georgia legislature is considering legislation that would increase the bankruptcy homestead exemption to $50,000 for one debtor, and $100,000 for a married couple in a joint case. This would provide very necessary protection for homeowners who are struggling with their finances yet have equity in their residences which they cannot tap into because of their poor credit. For the sake of comparison, our neighboring state of South Carolina has a bankruptcy homestead exemption of $59,100 for one debtor and $118,200 for a married couple. Florida’s bankruptcy homestead exemption is even more generous, being unlimited for debtors who have owned their property for more than 1215 days, subject to acreage restrictions. Hopefully, the Georgia legislature will see fit to increase the homestead exemption for bankruptcy and allow more homeowners to seek bankruptcy relief without jeopardizing ownership of their residences.
At Leiden and Leiden, we offer a free bankruptcy consultation. As part of that consultation, we always review information about any real estate owned by a prospective client to determine whether or not there will be sufficient bankruptcy exemptions to protect their property. Hopefully, the Georgia legislature will increase the bankruptcy homestead exemption and we will be able to deliver better news to some of our prospective, home owning clients, who would’ve otherwise been deprived of adequate financial relief.