Most adults in Tennessee have faced financial challenges at some point in their lives. Some have been able to quickly rectify their situations by adjusting their spending habits. If you're currently in the midst of a serious financial crisis, you likely already know that things aren't always that simple. Sometimes, no amount of spending adjustment is enough to overcome major debt.
The good news is that there are often bankruptcy options available for people in such situations. If you're considering filing for debt relief, there are several things you should know, including the basic differences between Chapter 7 and Chapter 13, so that you can make informed decisions and choose a course of action that best fits your immediate financial needs and long-term goals.
The wage earner's plan
Chapter 13 is generally for people who have income. The following facts provide more information about this form of bankruptcy, including how it differs from Chapter 7:
- Chapter 13 involves a restructuring of finances and reorganization of your payment plans.
- This type of bankruptcy typically allows you three to five years to pay back a major portion or all of your debt.
- The court may discharge any debt remaining after you fulfill your court-approved Chapter 13 payment plan.
- You must prove you have enough disposable income to satisfy your debt under a Chapter 13 plan.
In short, if you can financially afford a Chapter 13 plan, then the court expects you to choose that option over Chapter 7. Chapter 7 usually involves a complete liquidation of assets in order to satisfy your debts. Chapter 13 allows you to retain ownership of your personal and business assets.
Other Chapter 7 facts
Certain assets are exempt from liquidation under Chapter 7 bankruptcy regulations. The following list shows some of those exemptions and may help you determine which bankruptcy option is best in your case:
- Exemptions under Chapter 7 In Tennessee include equities in real estate, household goods and motor vehicles.
- The amount of equity for each exemption varies.
- When liquidation occurs, the court discharges any debt attached to those assets.
- Chapter 7 bankruptcy generally discharges debt but not liens.
You must file for bankruptcy in good faith, as bankruptcy abuse is punishable by law. Chapter 7 bankruptcy usually remains on your credit record a couple years longer than Chapter 13. Either form of debt relief, however, may be a viable option toward overcoming serious financial debt and laying the groundwork for restored financial stability down the line.
Most financial problems are resolvable if you understand the options available and seek support to help determine which form of debt relief best fits your situation.