Maximizing the Georgia homestead exemption under bankruptcy law

Maximizing the Georgia homestead exemption under bankruptcy law.

Published on June 11, 2014 by: Ian M. Falcone

Georgia elected to opt out of the federal bankruptcy exemptions.  Georgia’s homestead exemption (O.C.G.A. §44-13-100(a)(1)) states that any debtor who is a natural person may exempt, for bankruptcy purposes, the following: 

The debtor's aggregate interest, not to exceed $21,500.00 in value, in real property or personal property that the debtor or a dependent of the debtor uses as a residence, in a cooperative that owns property that the debtor or a dependent of the debtor uses as a residence, or in a burial plot for the debtor or a dependent of the debtor. In the event title to property used for the exemption provided under this paragraph is in one of two spouses who is a debtor, the amount of the exemption hereunder shall be $43,000.00.

There are four possible scenarios involving married debtors, their home and the bankruptcy homestead exemption:

 1.        The marital home is jointly titled and both spouses are filing for bankruptcy protection.  This is probably the easiest scenario.  Each debtor is entitled to claim an exemption of $21,500, providing an effective exemption of $43,000. 

2.         The marital home is only in one spouse’s name and the other spouse is filing.  No exemption is needed because the property is not part of the estate.   This is usually the client’s favorite situation.  The house is not at risk regardless of the amount of equity. 

3.         The marital home is jointly titled, but only one spouse is filing for bankruptcy protection.  The equity is effectively “split” between the spouses.  The non-filing spouse is entitled to his or her share of the equity.  The filing spouse claims the $21,500 from his or her half of the equity.  This scenario is also a client favorite as it protects a substantial amount of equity.

4.         The marital home is only in one spouse’s name and that spouse is filing for bankruptcy protection.  Upon first glance, you might conclude that since the property is only in the filing spouse’s name, only that spouse is entitled to an exemption;  the non-filing spouse does not have title, so they get to claim nothing.  

But, that is not what the statute says.  The filing spouse gets to claim the full double exemption as if both spouses were property owners and filing together.

Here is a chart of each of these scenarios with different house values and loan amounts:

	Example 1 FMV = $250,000 Loans:  $210,000	Example 1 FMV = $275,000 Loans:  $210,000	Example 1 FMV = $300,000 Loans:  $210,000
1.  Joint title – Joint filing	Equity $40,000 Exemption:  $43,000 No risk to home	Equity $65,000 Exemption:  $43,000 Some risk to home.	Equity $90,000 Exemption:  $43,000 Risk to home.
2.  Title in non-filing spouse	Equity $40,000 Exemption: Not Needed No risk to home	Equity $65,000 Exemption:  Not Needed No risk to home.	Equity $90,000 Exemption:  Not Needed No risk to home.
3.  Joint title One filing spouse	Equity $20,000 Exemption:  $21,500 No risk to home	Equity $32,500 Exemption:  $21,500 Some risk to home.	Equity $45,000 Exemption:  $21,500 Some risk to home.
4.  Title in filing spouse’s name only.	Equity $40,000 Exemption:  $43,000 No risk to home (If only the $21,500 exemption were used, there would be some risk to the home)	Equity $65,000 Exemption:  $43,000 Some risk to home. (If only the $21,500 exemption were used, there would be risk to the home)	Equity $90,000 Exemption:  $43,000 Risk to home. (If only the $21,500 exemption were used, there would be substantial risk to the home)

As you can see, the ability to double the exemption provides substantial additional protection to the debtor. 

Also, remember that the mere fact that there is some equity after exemptions does not always place a home at risk.  In a Chapter 13 case, it will simply add to the amount that the debtor must pay into the plan to satisfy the liquidation analysis of 11 USC 1325.

In a Chapter 7 case, the Trustee will incur real world costs of sale in any transaction.  Our local trustees typically include these costs in their assessment of whether or not to sell an asset.  In the case of real property, sales commissions are typically 6% of the gross price.  While there is no “magic” amount at which the trustee takes action, and there are certainly no guaranties,  it is unusual for a trustee to try and sell a home with less than $10,000 or $15,000 of equity after exemptions.