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Chapter 7 or Chapter 13: Which makes sense for your situation?

On Behalf of | Jan 15, 2019 | Uncategorized

Are you one of the many Tennessee residents struggling to keep your head above water financially speaking? If you are, debt relief options may be available to you. There are a few options out there, and trying to figure out which makes sense for your situation can be difficult.

Bankruptcy is not for everyone, but for some people, it is the best thing they can do to improve their economic situations. There are two types of consumer bankruptcy: Chapter 7 and Chapter 13. How are they different?

Chapter 7 basics

Professionals and consumers often refer to Chapter 7 bankruptcy as liquidation bankruptcy. You may lose certain assets if you go this route, but if your filing receives approval, you could walk away from the process practically debt free. Debts that do not qualify for discharge include:

  • Post-conviction fines, penalties and restitution payments
  • Alimony
  • Child support
  • Certain tax debt

Successful bankruptcy cases often result in the discharge of debts such as credit card balances, auto loans, home loans and medical expenses.

If you wish to pursue a Chapter 7 filing, you need to find out if you qualify to do so. There are income restrictions for this type of filing. If you make too much money or if you have what the court deems sufficient disposable income, this type of bankruptcy may not be an option for you.

Chapter 13 basics

Chapter 13 bankruptcy also goes by repayment bankruptcy. Under a Chapter 13 plan, if your petition receives approval, you will have three to five years to pay back your creditors. How much you have to pay monthly will depend on how much you owe and on what you and your creditors can agree to. At the end of your payment term, remaining debts may qualify for discharge.

The main benefits of a Chapter 13 bankruptcy over a Chapter 7 is that you will get to keep your property and any co-debtors will also receive bankruptcy protection, meaning creditors cannot come after anyone who has co-signed on any of your accounts looking for payment.

Roughly 71 percent of all bankruptcy filings do qualify for Chapter 7 protection, which is great for those who simply want their debts discharged. At the end of the day, you need to look at your income level as a whole as well as what your goals are for the future and decide which type of bankruptcy makes sense for your situation.


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