What Happens to Debt After Filing Bankruptcy in Tennessee?
Filing for bankruptcy is a significant decision that can greatly impact an individual's financial future. In Tennessee, as in other states, understanding what happens to debt after filing for bankruptcy is crucial for anyone considering this option. Here’s a detailed look at the process and consequences.
Types of Bankruptcy in Tennessee
Individuals in Tennessee typically file for Chapter 7 or Chapter 13 bankruptcy. Chapter 7 allows for the discharge of most unsecured debts, while Chapter 13 enables individuals to reorganize their debts and create a repayment plan.
Discharge of Debt
Once bankruptcy is filed, the automatic stay goes into effect. This legal provision halts most collection activities, including calls, wage garnishments, and lawsuits, providing immediate relief to debtors. In Chapter 7, eligible debts such as credit card debt, medical bills, and personal loans are typically discharged. Conversely, Chapter 13 requires the debtor to repay a portion of their debts over a three to five-year period based on their income and expenses.
Non-Dischargeable Debts
It’s essential to note that not all debts are eligible for discharge. In Tennessee, certain obligations remain even after bankruptcy. These include:
- Student loans (unless undue hardship can be proven)
- Child support and alimony
- Certain tax debts
- Debts resulting from fraud or willful misconduct
Effects on Credit Score
Filing for bankruptcy will have a notable impact on an individual's credit score. A Chapter 7 bankruptcy remains on a credit report for up to ten years, while Chapter 13 stays for up to seven years. This can make it challenging for individuals to secure new loans or credit during that time.
Rebuilding Credit After Bankruptcy
Despite the initial hit to credit scores, many individuals in Tennessee find ways to rebuild their credit after bankruptcy. It typically involves making timely payments on any remaining debts, obtaining secured credit cards, and establishing a budget to manage finances responsibly.
Conclusion
In Tennessee, filing for bankruptcy can provide a fresh start for individuals overwhelmed by debt. Understanding the implications, such as the types of debts that can be discharged and those that cannot, is essential. While bankruptcy can have lasting effects on credit, with diligence and responsible financial management, rebuilding is possible.