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There are advantages to filing for Chapter 13 bankruptcy

Bankruptcy has a stigma associated with it, but it need not be that way. Rather than being a process that causes a person to lose all their possessions and become destitute, bankruptcy offers a means for debtors to repay many of their debts, allowing them to move forward with a clean financial slate.

When it comes to personal bankruptcy, debtors generally have two choices: Chapter 7 bankruptcy and Chapter 13 bankruptcy. Chapter 7 bankruptcy is the type many people in Tennessee may be more familiar with. In a Chapter 7 bankruptcy, some (but not all) of a person's assets are liquidated and used to pay the person's debts. After that, many (but not all) of the person's remaining debts are discharged. The Chapter 7 bankruptcy process is rather quick, taking around six months to complete.

However, to be eligible for Chapter 7 bankruptcy, a person's disposable income must pass the "means test," meaning that that individual's income must be below a certain level. If a person's disposable income is too high, Chapter 7 is not an option and they must file for Chapter 13 bankruptcy. In a Chapter 13 bankruptcy, a person's assets are put in the hands of a trustee, and the person will follow a court-ordered debt repayment plan for three to five years. Following this, many of the person's remaining debts may be discharged.

While Chapter 7 may seem attractive given that it is a shorter process, there are advantages to Chapter 13. Chapter 13 gives those with a higher income the same bankruptcy protection as those who are eligible for Chapter 7. Assets are not liquidated under a Chapter 13 plan, either. In some situations, back taxes and child support or spousal support arrearages can be included in a Chapter 13 plan. Co-signers of personal loans are not held responsible for paying back the loan under a Chapter 13 plan. Finally, attorney's fees can be included in the Chapter 13 repayment plan, meaning the debtor can pay them over time, rather than as a single lump sum.

As this shows, while some people may choose to apply for Chapter 7 bankruptcy, there are advantages to Chapter 13 bankruptcy. However, determining which type of bankruptcy is available and appropriate can be complicated, and is not something most people can handle alone. Bankruptcy attorneys understand the differences between these types of bankruptcies and can help clients determine which option is best for them.

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Kenneth C. Rannick, P.C.
4416 Brainerd Road
Chattanooga, TN 37411

Phone: 423-624-4002
Toll Free: 800-257-7594
Fax: 423-624-0509
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