Guiding You Toward A Brighter Financial Future

Comparing Your Bankruptcy Options: Chapter 7 Vs. Chapter 13

Most people in Tennessee are aware of bankruptcy to some degree or another, and many know that it can provide a fresh start for individuals who find themselves unable to get out of debt as a result of job loss, illness or other financial difficulty. What many people do not know, however, is that bankruptcy is far from one-size-fits-all. In fact, there different types of bankruptcy for different situations, each with its own set of pros and cons.

When considering bankruptcy as an option for getting out of debt in Tennessee, it is important to learn about the different types of bankruptcy that are available and find out which one may be most likely to meet your needs. There are two main types of consumer bankruptcy: Chapter 7 “liquidation” bankruptcy and Chapter 13 “reorganization” bankruptcy.

Chapter 7 Bankruptcy

During a Chapter 7 bankruptcy, most types of personal debt can be discharged — meaning that they do not have to be paid back. Debts that are typically eligible for discharge during Chapter 7 bankruptcy include things like credit card balances and medical bills. Certain other debts such as delinquent taxes and child support cannot be discharged and must be paid off even if the individual files for bankruptcy.

Depending on the circumstances, if you decide to file for Chapter 7 bankruptcy, you may be required to “liquidate” certain items of property. This means that valuable assets like a home or second vehicle may be converted to cash during the bankruptcy process and used to pay off some of your debts. However, because bankruptcy law provides a number of exemptions to the liquidation requirement, many people are able to obtain relief through Chapter 7 bankruptcy without surrendering any property at all.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy differs from Chapter 7 in some important ways. If you choose to file for Chapter 13 bankruptcy, your debts will not be immediately discharged; instead, they will be reorganized under a court-approved payment plan. You will be required to make payments under the plan for a period of three to five years, at the end of which you may be able to discharge some or all of your remaining debts.

One of the main benefits of Chapter 13 bankruptcy is that, unlike Chapter 7, it generally does not require any assets to be liquidated. In addition, homeowners often prefer Chapter 13 bankruptcy because it allows them to avoid foreclosure by spreading out their past-due mortgage payments over the length of the payment plan. This gives the homeowner more time to catch up on his or her payments and keep the home.

Bankruptcy Stops Debt Collectors

Regardless of whether you choose to file under Chapter 7 or Chapter 13, a court order called an automatic stay will go into effect as soon as you file for bankruptcy. The automatic stay prohibits most creditors from seeking payment from you while your bankruptcy case is pending, and also temporarily stops other collection efforts such as wage garnishment, repossession or foreclosure. After the conclusion of your bankruptcy case, your creditors will be permanently barred from seeking payment on any debts that have been discharged.

Contact A Lawyer For More Information

If you are overwhelmed by debt and considering a fresh start through bankruptcy, be sure to talk your situation over with an experienced bankruptcy lawyer. A knowledgeable attorney can help you weigh the options and choose the best course of action based on your specific circumstances.