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Chapter 7 versus Chapter 13: Which is best for you?

If you live in Tennessee and are thinking about filing bankruptcy as a last resort to relieve you of your overwhelming debt, you likely wonder whether Chapter 7 or Chapter 13 is your best choice. As FindLaw explains, both types of bankruptcy have their respective advantages and disadvantages, and which is best for you depends on the nature of your debt and how you wish to handle it.

While approximately 71 percent of bankruptcy filers choose Chapter 7, they do so mostly because Chapter 7 is easier and takes less time.

Chapter 7

You can file a Chapter 7 bankruptcy if you have a valid Social Security number and did not file bankruptcy within the past eight years. Be aware that you must meet the Tennessee income guidelines, and these change every so often. Your best strategy is to consult a knowledgeable bankruptcy attorney.

One of the biggest advantages of Chapter 7 is that it discharges most of your debts, including your credit card balances. In addition, your creditors cannot harass you by phone or mail for debt collection because of the automatic stay provision of Chapter 7. However, although Chapter 7 can forestall foreclosure of your home, it likely cannot save your home from ultimate foreclosure.

Chapter 13

Unlike Chapter 7, the purpose of which is to discharge many of your debts, the purpose of Chapter 13 is to give you the opportunity to pay off your debts over a relatively long period of time, usually three years. Once you file for Chapter 13, you set up a payment plan whereby you affordably pay down your debts at reduced rates. The affordability aspect arises from the fact that you customize the plan to your particular financial situation, pay your living expenses first, and then divide your remaining income among your creditors.

Once the bankruptcy judge approves your Chapter 13 plan, you start making your payments in accordance with it, and your creditors cannot harass you for debt collection while you are doing so. In addition, unlike a Chapter 7, Chapter 13 can prevent foreclosure of your home, repossession of your vehicle(s) and garnishment of your wages.

While this information is not legal advice, it can help you understand the bankruptcy process and what to expect under Chapter 7 and Chapter 13.

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