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How does Chapter 13 bankruptcy work?

If a Tennessee resident has exhausted all debt relief options but still cannot get out of the debt, filing for bankruptcy is often the most logical scenario. However, some Tennessee residents may hesitate to explore bankruptcy filings because they are unfamiliar with its merits. Chapter 13 bankruptcy is one of those filings and this type of bankruptcy has often taken a backseat to the more well-known Chapter 7 bankruptcy. Nevertheless, Chapter 13 can lead to the fresh financial start that some Tennessee residents have been longing for.

According to the National Association of Consumer Bankruptcy Attorneys, over half of the bankruptcy filings in Tennessee in 2012, as well as in Georgia, Alabama, North Carolina, Louisiana and Texas, were Chapter 13. Also known as reorganization bankruptcy, Chapter 13 allows consumers to pay off debts through manageable payments under the close supervision of a court-appointed trustee. The budget plan can last from three to five years, depending on the capacity of the individual to clear their debts. For a Tennessee resident who has children, this can be the bankruptcy of choice in order to avoid disrupting the lives of the children.

Under Chapter 13, a Tennessee resident will be able to keep their property and assets. It gives them a chance to stop foreclosure and catch up on mortgage payments. They can save secured assets, like a house and a car, if they can effectively show that their income can handle the payments. On the other hand, payment of unsecured debts can be left to the discretion of the person in debt or a trustee. However, like any other bankruptcy filing, Chapter 13 does have its challenges. In Chapter 13, it is a challenge to maintain a strict budget for three to five years.

However, that is also one of the virtues of a Chapter 13 bankruptcy filing. Tennessee residents can learn financial discipline, which can then help them make better decisions with their money when they get discharged from bankruptcy.

Source: Fox Business, "Chapter 13 Bankruptcy: How it Works," Accessed Oct. 6, 2014

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Kenneth C. Rannick, P.C.
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