How is Chapter 7 bankruptcy different from Chapter 13?
Before filing for bankruptcy, debtors should carefully consider whether Chapter 7 or Chapter 13 is the right option for them.
Instead of dealing with the burden of excessive debt for decades, many people file consumer bankruptcy to find relief and achieve a fresh financial start. Those in Tennessee interested in filing for bankruptcy should make sure they understand how Chapter 7 bankruptcy and Chapter 13 differ before moving forward with the dissolution process.
During the Chapter 7 bankruptcy process, the appointed bankruptcy trustee inventories the nonexempt assets the debtor owns and uses the proceeds to pay off a portion of the debt. Not all of a person’s property is considered nonexempt, and many assets, such as work-related tools and vehicles, are often considered exempt. For this reason, those who file under Chapter 7 bankruptcy should remember that some of their property may be lost during this process.
In order to qualify for Chapter 7 bankruptcy, debtors must pass a means test. They may also not have filed a petition for bankruptcy within the prior 180 days and failed to comply with the orders set forth by the court.
Debtors who qualify for this form of consumer bankruptcy do not have to pay back any portion of their discharged debts. Over all, Chapter 7 is designed to truly give those who file a fresh financial start.
Otherwise known as a wage earner’s plan, Chapter 13 bankruptcy gives debtors the opportunity to come up with a plan to repay a portion of their debts. While filing under this type of bankruptcy, debtors come up with a proposed prepayment plan and if it is approved, they have to abide by this plan for a period of three to five years.
One of the main benefits associated with Chapter 13 bankruptcy is that debtors can avoid foreclosure on their home. However, they must still make their mortgage payments in the following months and years as part of their repayment plan.
Any debtor is eligible to file under Chapter 13 as long as his or her secured debts are less than $1,184,2000 and his or her unsecured debts are less than $394,725, states the United States Courts. Just like with Chapter 7, debtors cannot file under Chapter 13 if their petition for bankruptcy was dismissed during the prior 180 days because of failure to comply with court provisions.
Taking the next step
Filing Chapter 7 or Chapter 13 bankruptcy, although these processes can provide financial relief, is a major decision with significant consequences. Before making the final decision to file, those in Tennessee should meet with an attorney to discuss their legal needs.