Understanding different bankruptcy options

Debtors in Tennessee should carefully assess Chapter 13 and Chapter 7 bankruptcy plan structures before selecting the one right for their needs.

Many Tennessee residents may feel unsure about pursuing a bankruptcy when they are unable to stay up with their debts. However, a bankruptcy may well be the best way for someone to get the fresh start they really need and deserve.

However, 360 Degrees of Financial Literacy explains that it is very important for people to get the facts about the two main forms of consumer bankruptcy before making a decision about how to proceed. Both Chapter 13 and Chapter 7 may offer debt relief but they go about it in very different ways.

What is a Chapter 13 bankruptcy plan?

In a Chapter 13 plan, a consumer's debts are consolidated into a repayment plan. A trustee is appointed and this person works with the creditors to make agreements about how much of the debt they are willing to forgive and how much should be repaid. The debtor sends money per the finalized plan to the trustee every month and the trustee distributes it to the creditors.

Because some repayment is required with a Chapter 13 plan, this form of bankruptcy is often referred to as a wage earner's plan . The U.S. Courts explains that a debtor will not lose any assets in this type of bankruptcy and for this reason homeowners may find this type of plan is better for them.

Chapter 13 bankruptcy plans last for three to five years. At the end of the repayment period, a discharge is achieved.

What is a Chapter 7 bankruptcy plan?

For many people, Chapter 7 plans may be the type of bankruptcy that they are most familiar with. In these plans, no monthly repayment of any debt is required. However, some assets that are attached to collateral may be taken and sold in order to repay some of the money owed. For this reason, these plans can be referred to as liquidation plans.

A secured debt includes a mortgage or an auto loan. This means homes or cars can be seized and sold so creditors get some of their money back. Unsecured debts are things that do not have any collateral items such as credit card bills or medical bills. These debts are simply discharged in a Chapter 7 bankruptcy.

While a Chapter 13 plan takes many years to complete, a Chapter 7 plan can be completed in just a few months.

How can I decide which plan is right for me?

Before making a final decision about a bankruptcy, Tennessee residents should talk to an attorney. There are many elements of bankruptcy law that could change a person's decision and understanding the long-term impact of a bankruptcy choice is important.