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Why is Chapter 13 called reorganization bankruptcy?

Not all forms of bankruptcy are available to all debtors. While some bankruptcy options are available to individuals, others are only open to certain types of corporations or businesses. For Tennessee residents who wish to use bankruptcy to overcome their financial hardships, there are two main formats that are typically used: Chapter 7 bankruptcy and Chapter 13 bankruptcy.

Chapter 7 bankruptcy involves the liquidation of personal assets so that a debtor may repay their creditors for their outstanding loans and obligations. Chapter 13 bankruptcy, however, involves the use of a debtor's disposable income to repay creditors over time. Because the debtor in a Chapter 13 bankruptcy must submit a plan to their bankruptcy court that details how they will use the money they are making to satisfy their debts and liabilities, they effectively reorganize their finances to pay off what they owe to others.

That is how Chapter 13 bankruptcy gets its title of reorganization bankruptcy: It mandates that debtors find a new way to manage their finances so that extra money may be used to get out of debt. Since debtors may have the same earning capacity, and they often have various debt obligations, Chapter 13 reorganization plans may take on very differing characteristics.

The reorganization plan of Chapter 13 bankruptcy is one aspect that sets it apart from other options that debtors may consider when they are investigating options for getting out of debt. Another major difference is that Chapter 7 requires the liquidation of assets, whereas Chapter 13 allows an individual to retain his or her assets. A bankruptcy attorney may be consulted by those who want more information about how their individual financial situations may be served through this form of bankruptcy. As with all of the other posts on this blog, the information contained herein should not be read as financial or legal advice.

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

Toll Free: 888-376-0282
Phone: 423-933-1606
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