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Comparing Tennessee Chapter 7 with Chapter 13 Bankruptcy

Tennessee residents filing for bankruptcy may choose to file under Chapter 7 or Chapter 13. Both Chapter 7 and Chapter 13 bankruptcies mandate credit counseling six months prior to filing for bankruptcy. However, in a Chapter 7 bankruptcy filing, all assets that are not exempt are surrendered and liquidated for distribution among the creditors.

On the other hand, under Chapter 13 bankruptcy, the debtor will propose a debt management plan, which, if approved, will allow the debtor to repay the debts over a period of three to five years. The plan proposes repayment of the debt from disposable income, and the debtor continues to retain all assets.

Provisions under both Chapter 7 and Chapter 13 bankruptcy provide different eligibility requirements. Typically, the debtor who is earning less than the state median income satisfies the "means" test required for filing under Chapter 7.

Chapter 13 provides different thresholds in terms of secured and unsecured debt as eligibility requirements. All debts, with few exceptions, are discharged when the court enters a discharge order at the end of the process.

Recent amendments have made it stricter to file for bankruptcy under Chapter 7. Chapter 13 bankruptcy will have no effect on non-exempt assets, if the debt management plan is completed successfully. Nonetheless, if the plan is not successful, non-exempt assets are used to repay the creditors.

Bankruptcy is reflected in the credit report of the debtor for 10 years from the date of filing. As a result, bankruptcy can have an adverse effect on the credibility of the debtor, thereby making it difficult to obtain credit. Some creditors maintain a Chapter 13 bankruptcy for only seven years because a discharge under Chapter 13 implies that the debtor had efficiently completed the debt management plan. It may be a wise idea to consult a lawyer, who can guide the debtor through the process of filing for bankruptcy.

Source: AmericanBar.org, "General Comparison of Chapter 7 and Chapter 13 Bankruptcy," accessed on July 17, 2015

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Kenneth C. Rannick, P.C.
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