In this episode of The Georgia Bankruptcy Podcast, the focus is on a critical question for those relying on Social Security: should you file for Chapter 13 or Chapter 7 bankruptcy if you own a home? The answer isn’t straightforward, but understanding the nuances can help you make an informed decision.
Understanding Social Security and Bankruptcy
As a general rule, if Social Security is your only source of income, it’s usually not advisable to file either Chapter 13 or Chapter 7 bankruptcy. Why? Because Social Security income is protected; creditors can’t touch it if it’s in a bank account dedicated solely to Social Security funds. However, the situation changes if you own a home, making things more complicated.
The Impact of Owning a Home
Let’s consider a hypothetical situation: you own a home worth $100,000, it’s fully paid off, and you have $10,000 in creditor debt. In this case, it might be wise to file a Chapter 13 bankruptcy to pay off that debt over time. Why? Because if you don’t, creditors can put a lien on your property. Contrary to popular belief, credit card companies can sue you and place judgments against your home. These judgments grow with interest, eventually eating away at your home’s equity.
Why Chapter 13 Might Be a Good Option
A manageable debt and a structured repayment plan can make Chapter 13 a viable option. It prevents creditors from placing risks on your property while allowing you to protect your Social Security income and avoid losing your home.
The Dangers of Chapter 7
Would a homeowner on Social Security ever want to file Chapter 7? The answer is typically no unless they are prepared for the possibility that a Chapter 7 trustee could sell their home. With the current high equity in many properties, the limited exemptions under Georgia law may not be enough to protect your home’s full value. Once you file for Chapter 7, you can’t back out. If a trustee determines your home is worth selling, you will lose it.
Special Circumstances
There are scenarios where Chapter 7 might make sense. For instance, if a homeowner on Social Security is struggling with a high mortgage payment and facing foreclosure after a spouse’s death, filing Chapter 7 could stop the foreclosure and allow a trustee to sell the house, possibly returning some equity to the homeowner. However, even in such situations, selling the home privately is often a better solution as it can yield more money and avoid trustee fees.
The Hidden Risks
Another significant risk of filing Chapter 7 as a Social Security recipient is inadvertently granting a trustee access to assets you may have forgotten about. For example, a universal life insurance policy could be seized by the trustee, liquidated, and used to pay creditors. It’s essential to consider all assets and understand the ramifications before proceeding.
Conclusion
Navigating bankruptcy is complex, especially for homeowners relying on Social Security. It’s crucial to consider your options carefully and consult with a bankruptcy expert to evaluate your situation.
For more detailed insights and practical advice, make sure to listen to the full episode. Visit KellyCanHelp.com or find The Georgia Bankruptcy Podcast on all major platforms to explore the complexities of bankruptcy and protect your financial future.
Tune in to gain a deeper understanding and make informed decisions that secure your home and retirement.
AND MORE TOPICS COVERED IN THE FULL EPISODE!!! You can check that out and subscribe to YouTube.
If you want to know more about Attorney Jeff Kelly, you may reach out to him at:
Every week, you get to listen to our hosts respond to one of your questions submitted by one of our viewers!
Copyright © 2021 Kelly Bankruptcy Podcast | Powered by Advantage Attorney Marketing & Cloud Solutions