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Should I file for Chapter 13 or Chapter 7 bankruptcy?

Anyone in Tennessee who may be considering filing for bankruptcy would do well to understand that the law provides for two different forms for individuals; Chapter 7 and Chapter 13.

Next, you need to appreciate that it's not simply a matter of picking one or the other. Not everyone can qualify for a Chapter 7 filing. If you do happen to be eligible for both, the next thing to do is to figure out which one will deliver the best possible debt relief outcome for you.

The objective in either event, of course, is to see debt discharged and the filer back on solid footing financially. The best way to be sure you have vetted all your options and selected the right course is to consult with an experienced bankruptcy attorney.

To get things started here is a quick summary of the differences between the two types of bankruptcy available to individuals.

Chapter 7 is the most common form of bankruptcy and tends to be the quicker of the two. Core to determining if you can file under this chapter is passing a means test. The question the test looks to answer is whether your income is below a certain threshold. If it is not, you won't be able to pursue this avenue of relief.

If you do qualify, the process taken will involve liquidation of the estate. Assets may be sold and the money used to pay off outstanding creditors. But in most cases, assets either fall under exempt status or are subject to lender liens, meaning they can't be sold to cover other obligations. Once all proceeds of asset sales are distributed, most of the remaining bills are declared discharged and your obligation to pay them is erased.

The theme of a Chapter 13 bankruptcy filing is reorganization or rehabilitation. The process involves working out a plan which, over the course of several years, calls for a schedule to be followed for paying creditors. At the end of the period, if the terms have been followed, remaining debt is discharged.

The greatest advantage many find in Chapter 13 is that it allows a homeowner to avoid foreclosure. Additionally, more types of debt can be discharged than under Chapter 7. There also isn't a need to meet the means test.

Source: FindLaw, "Chapter 7 vs. Chapter 13 Bankruptcy," accessed Sept. 19, 2104

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