Chapter 7 Bankruptcy vs. Chapter 13 in Tennessee

When faced with overwhelming debt, individuals in Tennessee may consider filing for bankruptcy to seek relief. Two common forms of bankruptcy for individuals are Chapter 7 and Chapter 13. Understanding the differences between these two options is crucial in making a decision that best fits your financial situation.

Chapter 7 Bankruptcy in Tennessee

Chapter 7 bankruptcy, often referred to as "liquidation bankruptcy," is designed to eliminate most unsecured debts, such as credit card debts, medical bills, and personal loans. In Tennessee, the process typically takes about three to six months from filing to discharge.

One of the significant features of Chapter 7 is the means test. This test assesses your income, expenses, and family size to determine whether you qualify for Chapter 7. If your income is below the state median income for your household size, you are likely eligible to file.

In the Chapter 7 process, a bankruptcy trustee is appointed to review your financial situation. While most unsecured debts can be discharged, certain exceptions exist, such as student loans, child support, and tax debts. Additionally, some assets might be liquidated to pay off creditors, but Tennessee offers exemptions that protect certain properties, including your primary residence and vehicle up to specific value limits.

Chapter 13 Bankruptcy in Tennessee

In contrast, Chapter 13 bankruptcy, also known as "reorganization bankruptcy," allows individuals with a regular income to create a repayment plan to pay back a portion of their debts over three to five years. This option is generally suited for individuals who wish to keep their assets and are capable of making regular payments.

To qualify for Chapter 13 in Tennessee, individuals must have a regular income and meet specific debt limits. The bankruptcy court will approve a repayment plan based on your income, living expenses, and the types of debts you owe. This plan outlines how much you will pay each month and for how long. Once your repayment plan is completed, any remaining unsecured debt may be discharged.

One notable advantage of Chapter 13 is that it can help individuals avoid foreclosure on their homes by allowing them to catch up on missed mortgage payments through the repayment plan. Additionally, Chapter 13 can provide protection against the collection actions from creditors and offers a structured way to manage your finances.

Key Differences Between Chapter 7 and Chapter 13 in Tennessee

1. Duration: Chapter 7 typically takes a few months, while Chapter 13 involves a repayment plan of three to five years.

2. Debt Discharge: Chapter 7 eliminates unsecured debts, while Chapter 13 requires partial repayment of debts over time.

3. Asset Protection: Chapter 7 may result in the liquidation of some assets, although many are exempt. In Chapter 13, individuals can retain their assets while making payments.

4. Income Requirements: Chapter 7 has strict means tests, whereas Chapter 13 requires a regular income to fund the repayment plan.

Conclusion

Choosing between Chapter 7 and Chapter 13 bankruptcy in Tennessee ultimately depends on your financial circumstances, income level, and long-term goals. It is advisable to consult with a qualified bankruptcy attorney who can provide guidance tailored to your unique situation. With the right information and support, you can make a decision that paves the way toward a more financially secure future.