When a financial situation becomes so dire that covering debts is impossible, a Tennessee resident might seek protection under federal bankruptcy laws, such as by filing Chapter 7 bankruptcy. Those who meet the requirements can take the necessary steps to eliminate some of their debt and have a fresh start.
Chapter 7 and liquidation
People find themselves seeking protection in bankruptcy court for many reasons. Sometimes, careless spending leads them to financial trouble. However, unexpected issues like job loss or massive medical debt may arise. The controversy surrounding medical debt often leads to the public asking lawmakers for equitable regulations. Laws may be passed in the future to eliminate medical debt from credit reports. However, those dealing with excessive debt today may need to file bankruptcy to address their excessive obligations.
Chapter 7 bankruptcy can help those unable to make payments under a Chapter 13 restructuring plan. Chapter 7 involves liquidating assets to cover some debts. The court can discharge other debt obligations, including unsecured credit debt and medical bills.
Notes about Chapter 7
Filing for Chapter 7 bankruptcy requires passing a means test that establishes the person’s debt situation is too severe for Chapter 13. Passing a means test will reveal the person has no disposable income upon reviewing income to debts and expenditures over the past six months.
Those worried about seeking bankruptcy protections might need to understand the liquidation element better. Not all assets face liquidation when filing for Chapter 7. Debtors assuming that they will lose all their assets are misinformed. Conversely, not all debts face liquidation. Child support payments and certain tax obligations will not disappear.