What’s The Difference Between Chapter 7 & Chapter 13 Bankruptcy
Chapter 7 and Chapter 13 bankruptcy share a few similarities. Both personal bankruptcy options are available to individuals, and both offer you the opportunity to discharge certain debts. Both options immediately impose an automatic stay to keep creditors from taking further action against you, giving you protection during the filing process.
Heres the primary distinction: Chapter 7 bankruptcy is a liquidation of debts, and Chapter 13 is a reorganization of debts.
Understand Which Debts Will Be Eliminated
The goal of bankruptcy is to get relief from your debt. As such, it can be helpful to understand the types of debt that can be eliminated when filing for bankruptcy.
Many debts can be discharged. This includes unsecured credit cards, medical debts, personal loans, old utility bills, judgment debts, and old lease payments
Other debts cannot be discharged. This includes back alimony or child support, debts owed to the government, judgments related to DUI accidents, tax debts, and administrative costs or restitution
Tax debt receives special treatment in Chapter 13. You may not know how much debt you have. As such, you can access a free credit report annually, thanks to the US government. This can help you estimate how much debt would be eliminated by filing for bankruptcy.
How Long Do I Have To Wait To File Bankruptcy Again
Have you filed for bankruptcy before? Do you need to file for bankruptcy relief again? The good news is that it is possible to file for bankruptcy more than once in your lifetime.
Bryan Penland, bankruptcy attorney in Columbia, TN with Flexer Law, explains when you can file bankruptcy again if you have filed in the past.
If you have more bankruptcy questions, you can set up a free bankruptcy consultation with one of Flexer Laws experienced attorneys. We will gladly go over your options for how to best proceed.
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Why Would It Be Difficult To Dismiss A Bankruptcy
Nearly all bankruptcy cases are commenced by the debtor filing a bankruptcy petition with the court. It is possible for the to force someone into a Chapter 7 or 11 bankruptcy involuntarily. However, these involuntary bankruptcies are extremely rare, and only account for 0.05% of all bankruptcy cases, and between 50% to 75% of these cases are dismissed. Additionally, involuntary bankruptcy cases can back-fire on the creditors since the requirements are very strict and failure to meet these requirements can result in severe penalties against the creditors.
So if filing a bankruptcy is voluntary, then why would the debtor not be able to change their mind and just as easily dismiss the case?
Ideally, these debtors would have voluntarily dismissed their case, rearranged their financial and asset situation, and then re-file at a point in time where they would not stand to lose their properties . This would have resulted in no loss of property, no payment to creditors, and it would have been a simple open-and-shut case. However, a motion to dismiss in their situation would require a showing that dismissal is in the best interests of creditors. Clearly, this could not be shown as a sale of one or both of the properties would have resulted in a substantial payment to creditors. So the only thing that could be done is to try and mitigate the damage caused by our clients former attorney which we were able to do by converting their case to one under Chapter 13.
Common Tennessee Bankruptcy Exemptions
Here are some of the more common exemptions in Tennessee. When reviewing them, you’ll want to keep these things in mind:
- Joint filing. Unless otherwise noted, when spouses file together in Tennessee, each spouse can claim the full amount of the exemption as long as each spouse has an ownership interest in the property.
- List and verify your exemptions. You must claim an exemption by listing it in the official bankruptcy forms. You might qualify for exemptions not included in this article, or be required to meet qualification requirements. Consulting with a local bankruptcy attorney is the best way to ensure that you’re protecting your assets.
- Legal citations. You’ll find each of the statutes in the Tennessee Code or the federal law.
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Who Should File Chapter 13 Bankruptcy
Many people think of bankruptcy court as the final stop on a path to financial ruin, the only option left when repaying debts seems impossible. But theres hope even in bankruptcy, and Chapter 13 of the federal bankruptcy code offers the closest thing to a soft landing.
Sometimes called the Wage Earners Bankruptcy, Chapter 13 allows those with enough income to repay all or part of their debts as an alternative to liquidation. Its bankruptcy for those whose biggest problem is dealing with creditors demands for immediate payment, not lack of income.
One of its most attractive features is the chance to keep your home after Chapter 13 bankruptcy as long as you can pay the mortgage and any amount required by your Chapter 13 repayment plan..
Under Chapter 13, people have three to five years to resolve their debts while applying all their disposable income to debt reduction. The option allows applicants to eliminate unsecured debts while catching up on missed mortgage payments. Short-circuiting home foreclosure is one of the options most attractive features. Though keeping your home can be a major relief, youre required to spend years living under the supervision of a court-appointed trustee who will collect and distribute your payments.
Understand Alternatives To File Bankruptcy
There are many bankruptcy alternatives to consider. We will cover the two most common alternatives, but you can find more in our bankruptcy alternatives article. As a reference, filing Chapter 7 bankruptcy is often the least expensive and the shortest.
Debt settlement is also known as debt negotiation, debt relief, or a debt consolidation program . In debt settlement, a company or you will negotiate with your creditors for a lower amount. You can save money and avoid filing bankruptcy. You may also be exposed to lawsuits, so its important to understand which creditors are likely to sue. A debt settlement programs often last 2 – 5 years.
Debt management is also known as credit counseling. In debt management, a company will negotiate with your creditors for a lower percentage interest rate. You can save money on interest and avoid filing bankruptcy. Debt management can be more expensive than debt settlement and Chapter 13. Debt management programs often last 5 years.
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Attend Your 341 Meeting
The next step in your Tennessee bankruptcy is to attend the 341 hearing, also called the âMeeting of Creditors.â This hearing will take place in front of your Chapter 7 trustee and is generally pretty quick, usually lasting between five and ten minutes. You can learn more about what to expect at this hearing in this 341 meeting preparation video. The hearing will be set between 20 and 40 days from your petition filing date. You should receive your notice about this hearing within 15 days of filing your Chapter 7 bankruptcy in Tennessee. If you do not receive the notice in that time period, you should reach out to the court clerk right away. At the meeting of creditors: Under Bankruptcy Rule 4002, you must bring: a driverâs license or other personal identifying information that establishes your identity and evidence of your Social Security Number, or a written statement that such documentation does not exist. The trustee will ask questions based on your filing and the documents you provided in advance to establish that the information is true and accurate.
Issues With Chapter 7 Conversion
When you file for Chapter 13 bankruptcy, part of the process will be that the court will officially approve a repayment plan you must follow to receive a final discharge. If you cant agree on a plan that the court will approve, in some cases, you can convert your filing to Chapter 7.
However, if you already filed once, you have these varying time requirements before your second discharge. So, converting a Chapter 13 filing to Chapter 7 can be a problem. You may be past the amount of time required to receive a discharge with Chapter 13, but not long enough to receive a discharge with Chapter 7.
This makes having the right bankruptcy services on your side even more essential on a second bankruptcy, because you may be navigating some tough waters.
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Different Types Of Bankruptcy Explained
A Chapter 7 bankruptcy eliminates most debt, including credit card debt, without requiring repayment of any kind. Instead of a repayment plan, the Chapter 7 bankruptcy process liquidates your non-exempt assets to partially repay your debts. A Chapter 13 bankruptcy allows you to keep all of your property as long as the monthly repayment plan pays for the value of your assets. The debts that donât get paid as part of the repayment plan are discharged once the plan has been completed. The discharge of your debts gives you the fresh start you need.
The Chapter 11 bankruptcy process provides similar relief to that provided in Chapter 7 and Chapter 13, but is generally reserved for filers with businesses or significant assets and is a lot more expensive than even a Chapter 13 bankruptcy. This article will focus specifically on Chapter 7 and Chapter 13 bankruptcy.
Take Second Mandatory Debt Education Course
You must take a second mandatory debt education course in Tennessee before filing for discharge. Once you receive the certificate of completion, your attorney or you would add that into your filing to show proof of completion.
See the list of approved debtor education courses in Tennessee. Once filed, you now just have to wait for discharge.
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Filing For Bankruptcy And Choosing An Attorney
You can use the Court Locator to easily find the place closest to Johnson City and get the process started, but there are a couple of things you should take care of first.
Using an attorney is a vital part of this process, theyll know the laws better than you and can help guide you through this stressful and complicated process. Its always a good thing to have someone on your side who knows the ins and outs of this complicated piece of law otherwise big errors can be made.
Before you get with your attorney, have the following ready:
- Records of major financial transactions for the two years prior
- Records of monthly living expenses
- Paperwork on all debts, secured and unsecured
- Records of all of the property you own
- Deeds to any property you own
- Tax returns for the last two years
- Documentation of any loans
Once you have your paperwork in hand, you and your lawyer can get the process started as smoothly as possible in order to get things on their way.
What Is Chapter 13 Bankruptcy
Chapter 13 bankruptcy is a way to reorganize your debt. It involves repaying none, some or all of your debt over the course of three to five years. One important difference between Chapter 13 and Chapter 7 bankruptcy is that in Chapter 13, your debts arent discharged and youre still liable to pay them.
With Chapter 13, most or all of your creditors are lumped together into one large pool. You then make payments each month to a lawyer called a trustee whos assigned to your case. The trustee distributes your payment to the creditors.
In Chapter 13, you can reduce the amount owed on secured loans, reduce interest rates, re-amortize loans for a lower monthly payment, remove certain liens, extend the time to pay back taxes, reduce the amount owed on unsecured loans sometimes down to zero and legally break leases, says bankruptcy attorney Dai Rosenblum of Butler, Pa. Because a Chapter 13 filing can extend up to five years, Rosenblum says many people use it to catch up on their mortgage.
When you proceed with a Chapter 13 case, you must file a plan detailing how some, or all, of the debts will be repaid over time. In addition, you or your attorney, in conjunction with the trustee for your case, will determine a reasonable amount that you can afford to pay back to creditors. That amount is based on your assets, monthly income and monthly expenses.
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When Filing Another Bankruptcy Without A Discharge Could Be Beneficial
There are some times where you may not even need a discharge, rather more time to pay off your debts. For example, filing a Chapter 13 bankruptcy can help you extend the lifetime of your payments to help you pay off debt debts that you were previously unable to gain a discharge for. This strategy is also efficient in gaining more time to pay off debts that are simply not considered dischargeable by bankruptcy at all.
Knowing when and how to do this can be complicated, however, and consulting with experienced legal professionals is always wise before attempting this approach.
Collect Your Tennessee Bankruptcy Documents
To begin the process for filing Chapter 7 in Tennessee you will need to gather specific documents to assist you in determining whether you qualify for a Chapter 7 , and to fill out the necessary forms to file your case. You will need to have documentation regarding your income for the last six months. You should also make sure you have documents regarding any major financial transactions for the last two years monthly living expenses debts and property . You should also collect your tax returns for the last two years, deeds to any real estate you own, your car titles, and the documents for any loans you may have. It is a good idea to get a copy of your credit report at this point so that you can be certain you are including all the relevant information regarding your debts .
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How Soon After Your Last Bankruptcy Can You File For Another One
The answer depends on two things: what chapter of bankruptcy you filed previously, and what chapter you wish to file now.
- Chapter 7 to Chapter 7: For Chapter 7, which is considered the fastest bankruptcy when it comes to eradicating debt, there is an eight-year wait period from the date of your bankruptcy filing.
- Chapter 13 to Chapter 7: If you filed under Chapter 13, you must wait six years before filing under Chapter 7. In some cases, however, this rule may be lifted. If you repaid 70% or more of your unsecured debts and did your best to remain current with the repayment plan, you may be able to file a Chapter 7 earlier. In some cases, your Chapter 13 bankruptcy can be converted into a Chapter 7 bankruptcy if you can show financial hardship.
- Chapter 13 to Chapter 13: Those who have been granted Chapter 13 discharges must wait two years before filing a second Chapter 13 discharge.
- Chapter 7 to Chapter 13: If you filed under Chapter 7, you must wait four years before you can file under Chapter 13. For more details talk to a Memphis Bankruptcy Attorney today.
Chapter 7 Vs Chapter 13
Chapter 7 bankruptcy forces you to liquidate a great many assets to repay creditors. But the process can be concluded relatively quickly, and any wages and property you acquire after the bankruptcy filing, except inheritances, arent subject to distribution to your creditors. Typically, the entire process is completed within six months.
But Chapter 7 has disadvantages, too. Lenders who have already filed to foreclose on your home are only temporarily stalled, and other debts such as mortgage liens can be collected after the case is concluded. Cosigners on your debt are still obligated to pay.
Seeking Chapter 13 protection allows you to keep all your property. It simply extends the amount of time you have to repay what you owe after the bankruptcy court issues its ruling. It is possible to file a Chapter 13 bankruptcy after a Chapter 7 is completed, allowing you to seek a reduction in whatever debts remain from a Chapter 7 discharge.
Chapter 13 also protects your loan cosigners against collection efforts if the bankruptcy settlement obligates you to repay the debt yourself. If you need to file a second bankruptcy, Chapter 13 is only a two year waiting period versus eight years for Chapter 7.
There are disadvantages to Chapter 13 bankruptcy as well. Legal fees can be higher in Chapter 13 cases than Chapter 7 cases and your obligation to repay can last for years. In Chapter 7, the Chapter 7 discharge ends most debt obligations.
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Understand The Differences Between Chapter 7 And Chapter 13
Chapter 7 and Chapter 13 bankruptcy are the most common consumer bankruptcy filed in the United States. You need to know the difference because one chapter is more expensive and also often takes much longer.
Chapter 7 Bankruptcy in Tennessee
A Chapter 7 bankruptcy is referred to as liquidation bankruptcy. In many cases, bankruptcy filers do not lose their home or vehicle by using bankruptcy exemptions. We will cover how your belongings may be at risk below.
Heres what you need to know about filing Chapter 7 bankruptcy in Tennessee.
Chapter 13 Bankruptcy in Tennessee
A Chapter 13 bankruptcy is known as a wage earners plan. In many cases, you will pay back a portion of your unsecured debts in a payment plan.
Heres what you need to know about filing Chapter 13 bankruptcy in Tennessee.
For more information, you may consider reading, Is it better to file Chapter 7 or Chapter 13? and Is Chapter 13 Worth It? You should also consider the pros and cons of bankruptcy.