Declaring bankruptcy is always a major decision, for you and your family, that can have long-term negative effects on your finances and credit. It also is a legal means for you to “start over” with a clean slate, and at times necessary. It can be a complicated legal process that may require you to do a fair amount of research before deciding on the path you need to take, or even if it’s your best option.
If you and your bankruptcy lawyer do ultimately decide to file, one of the first big decisions you’ll make is whether to file Chapter 7 or Chapter 13 bankruptcy.
When you file for bankruptcy, you will usually file for either Chapter 7 or Chapter 13. The biggest difference between the two is what happens to your property.
The following helps to explain:
- Chapter 7 bankruptcy – Also known as liquidation bankruptcy, involves selling some or all your property to pay off your debts. This is most often the choice if you don’t own a home and have a limited income. There may be other reasons to choose this also.
- Chapter 13 bankruptcy – Also called “reorganization bankruptcy”, gives you the chance to keep your property (including secured assets like your home and car) if you complete a court-mandated repayment plan that may last between three to five years, and sometimes more.
Depending on where you live and your marital status, some of your property may be exempt from being sold when you file Chapter 7 because of Tennessee and federal exemptions. By using these exemptions, whether they be your home equity, retirement accounts, or even personal possessions such as jewelry, etc., the courts will allow you the allowed exemption amounts, and the rest of the proceeds will be used to pay off your debts.
Keep in mind, there are many rules, regulations, and personal information that come into making this decision. You, and your Kingston family law bankruptcy lawyer, will go over all the details of your case so you can be assured you are making the right decision. The Tennessee bankruptcy courts don’t intend to financially harm you, but some rules must be followed. By consulting with your bankruptcy lawyer, your case will be presented professionally, and your lawyer will always fight for you.
What Are Some Specifics on How Chapter 7 or 13 Would Affect Me?
Always keep in mind that no two bankruptcy cases are the same, and your lawyer and you will only decide what’s best after all the details of your case have been analyzed.
Some of the main differences between types of bankruptcy filings are:
In Chapter 7 bankruptcy:
- Your assets may be liquidated.
- You, as an individual or business, can file.
- Your disposable income must be low enough to pass the “Chapter 7 means test”.
- Usually takes 3-5 months
- The Trustee can sell all non-exempt property to pay your debts.
- Does not usually allow the removal of junior liens from real property (lien stripping).
- Does not usually reduce the principal loan balance on secured debts.
- The largest benefit is that Chapter 7 allows you to discharge most debt and get a fresh financial start.
In Chapter 13 (or reorganization):
- Your debts are reorganized by the courts and your creditors.
- Usually only applies to you as an individual (or sole proprietor).
- There are debt limits for unsecured debt and secured debt, which your lawyer will explain.
- Also, 3-5 years to complete, or until all plan payments are made.
- You usually may keep all your property but must pay unsecured creditors.
Does allow removal of junior liens with certain requirements being made.
- May have principal loan balances to be reduced if certain requirements are met.
There are many rules and court-mandated guidelines to follow, and only after all your debts are analyzed by your bankruptcy lawyer should your decision be made.
So, Simply Put, What Are the Benefits and Drawbacks of Chapter 7 and Chapter 13 Bankruptcy?
A chapter 7 bankruptcy may allow you as the debtor to quickly discharge most of your debt and truly get the fresh financial start you, and your family needs. This sounds good on the surface, but your situation is unique and must be legally treated as such. The drawback of chapter 7 bankruptcy is that the Trustee (for the court) could sell your non-exempt property and usually does not provide a way to catch up on missed payments or possibly avoid foreclosure or repossession.
A chapter 13 bankruptcy will, however, allow you to keep your property and possibly catch up on missed mortgage, car, and non-dischargeable priority debt payments. With that in mind, you still must make monthly payments to the trustee for three to five years and may have to pay back a portion of general unsecured debts.
It’s never a simple choice to make, and you need the professional guidance that your family bankruptcy lawyer can provide!
What Are the “Eligibility Rules” for Bankruptcy in Tennessee?
The main difference regarding this decision and ineligibility simply comes down to your family income. Chapter 7 requires you to have either a below-median level income for Tennessee or to pass a “means test”. This information will allow the courts to determine whether you can reasonably be expected to be able to repay your debts with your disposable income (meaning the income you have leftover after paying for your essentials).
These calculations, rules, exemptions, etc. can be legally challenging, but with professional help filing bankruptcy can relieve you, and your family, of the monumental stress that comes with “drowning” in debt.
I Know I May Have to File Bankruptcy, What Should I do First?
Deciding to file bankruptcy is a difficult, overwhelming, and stressful decision, so don’t ever try it alone. Get the professional help and guidance you need! The Davis Law Firm has helped a myriad of clients across Tennessee with this decision and will help you make a fresh start that may positively affect the rest of your life. Consult with their motivated and empathetic lawyers and they will guide you through this process so that you end up with the most appropriate legal solution to your situation.