Filing Bankruptcy to Eliminate Personal Loans in Tennessee
Filing for bankruptcy can be a complex decision, especially for individuals in Tennessee struggling with personal loans. Understanding how bankruptcy can help eliminate personal loans is crucial for those in financial distress.
In Tennessee, individuals typically have two primary types of bankruptcy to consider: Chapter 7 and Chapter 13. Each type has unique advantages and implications for personal loans.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy, often referred to as "liquidation bankruptcy," allows individuals to discharge most unsecured debts, including personal loans. When you file for Chapter 7, you may be able to eliminate your personal loan debt entirely, provided you qualify based on income and asset criteria.
To qualify for Chapter 7 in Tennessee, you must pass the means test, which examines your income relative to the median income in your state. If you fall below that median, you may proceed with filing. This process generally takes about three to six months to complete, allowing for a fresh financial start relatively quickly.
Chapter 13 Bankruptcy
In contrast, Chapter 13 bankruptcy is designed for individuals with a regular income who wish to repay their debts over time. This type of bankruptcy allows you to keep your assets while reorganizing your personal loans into a manageable repayment plan. The duration of this plan is typically three to five years.
Filing for Chapter 13 may be more beneficial for those who have fallen behind on mortgage payments and want to avoid foreclosure. It can also be a strategic option for those with significant non-dischargeable debt.
What Happens to Your Personal Loans?
When you file for bankruptcy in Tennessee, an automatic stay goes into effect, preventing creditors from pursuing debt collection during the bankruptcy process. This includes any pending lawsuits or wage garnishments related to personal loans.
In the case of Chapter 7, once the bankruptcy is complete, most personal loans will be discharged, meaning you will no longer be legally required to repay them. However, if you have co-signers on personal loans, they may still be responsible for the debt after bankruptcy.
In Chapter 13, while the personal loans won't be eliminated, they will be restructured. This restructuring can relieve the pressure of overwhelming monthly payments, allowing you to repay your debts more comfortably over time.
Steps to File for Bankruptcy
1. **Credit Counseling**: Before filing, you must complete a credit counseling session from an accredited agency within six months.
2. **Gather Documentation**: Compile financial records, including a list of debts, income, assets, and expenses.
3. **File the Petition**: Complete and file your bankruptcy petition with the Tennessee bankruptcy court, choosing either Chapter 7 or Chapter 13.
4. **Meeting of Creditors**: Attend a hearing with creditors, typically around a month after filing. This meeting allows creditors to ask questions about your financial situation.
5. **Complete Required Courses**: After the meeting of creditors, you must complete a debtor education course before your debts can be discharged.
Conclusion
Filing for bankruptcy in Tennessee can serve as a powerful tool for eliminating personal loans and providing a path to financial recovery. Whether you choose Chapter 7 for faster relief or Chapter 13 for a structured payment plan, understanding your options and seeking legal guidance can significantly impact your financial future.
If you are considering bankruptcy as an option, consulting with a qualified bankruptcy attorney in Tennessee will help you navigate the process more effectively and ensure you make informed decisions throughout your financial recovery journey.