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Comparing Chapter 7 and 13 bankruptcy

Many Tennesseans realize that filing for bankruptcy is an option when their debt gets too tough to manage. But less Tennesseans know that there are different versions of bankruptcy that may come into play. Those options are Chapter 7 and Chapter 13 bankruptcy.

Under both forms of bankruptcy, the first step is the same: mandatory credit counseling.

But after that, the two paths begin to separate. Following counseling, a person who files for Chapter 7 sells off their non-exempt assets with the proceeds going to the person's creditors. Whatever debt remains is normally forgiven.

By contrast, a person who files for Chapter 13 will emerge from counseling with a debt-repayment plan that will require a person to make payments to their creditors for three to five years. Debt that still exists after the repayment plan has finished will typically be forgiven.

Given these different paths, some Tennesseans may prefer one option over the other. But not everyone will get to pick between the two routes. That is because Chapter 7 is only available to people who pass a means test while Chapter 13 is for people with less than $307,675 in unsecured debt and less than $922,975 in secured debt.

Another difference is how frequently Tennesseans can use each option. A person can only file for Chapter 7 if they have not filed for Chapter 7 within the last eight years. On the other hand, a person can only file for Chapter 13 if, within the last two years, they have not had their debt discharged through Chapter 13 or within the last four years they have not had their debt discharged through Chapter 7, 11 or 12.

Tennesseans interested in learning more may benefit from discussing their situation with an experienced Tennessee bankruptcy attorney.

Source: American Bar Association, "General Comparison of Chapter 7 and Chapter 13 Bankruptcy," Accessed Sep. 20, 2016

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Mark T. Young & Associates
2895 Northpoint Blvd.
Hixson, TN 37343

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