Selecting the right bankruptcy plan

The type of debts and amount of income a consumer has can have a big impact on which type of bankruptcy plan should be used.

When Tennessee residents have struggled with heavy debt for long periods of time, making the choice to pursue a bankruptcy may one of the few choices left. While many people might try to avoid bankruptcy, this option may well provide the right level of support and debt relief to allow consumers to get back on their financial feet.

But, what type of bankruptcy should be chosen? There is no one right answer to that question as every person's situation is unique. Thus, it is important to understand the basics of both Chapter 13 and Chapter 7 bankruptcies in order to make the right choice.

How does Chapter 13 work?

The U.S. Courts explain that a Chapter 13 bankruptcy is essentially a form of debt consolidation. It offers consumers a structured repayment plan that is setup to be manageable with their current income levels and their cost of living minus the debt included in the plan. Chapter 13 bankruptcies may be completed in as little as three years or may extend to five years. The percentage of what is paid back to unsecured creditors varies in each case. The Chapter 13 payments are made to the Chapter 13 Trustee on a weekly, bi-weekly, semi-monthly, or monthly basis.

In most cases, consumers who opt for Chapter 13 p lans are allowed to keep all of their assets, including their homes. Mortgages can be included in a Chapter 13 plan.

How does Chapter 7 work?

A Chapter 7 bankruptcy can be completed in a matter of months. You must qualify to do a Chapter 7. In a Chapter 7, the debtor does not make payments to the trustee. Instead, a Chapter 7 Trustee is appointed to determine if you have any assets that exceed what you are allowed to protect. If there is an asset that is worth more than you can protect, the trustee will sell the asset and distribute it to unsecured creditors. If there is nothing for the trustee to sell, the dischargeable unsecured debt is eliminated. However, not all unsecured debt is dischargeable. For secured items, as long as the debtor is allowed to keep them, the debtor executes a reaffirmation agreement and continues to pay the secured creditor directly.

What should I do if I want to file for bankruptcy?

The best thing that a Tennessee resident can do when seeking debt relief via bankruptcy is to talk with an experienced attorney. Every case is different and unique.