When you are considering bankruptcy, it’s important to understand what to consider when choosing between Chapter 7 and Chapter 13. In general, the choice depends on your assets, income, and desired financial outcomes. In general, Chapter 7 allows for faster debt relief through the liquidation of assets to repay creditors, while Chapter 13 allows for the structured repayment of debts over a course of three to five years. In most cases, Chapter 7 is ideal for the faster elimination of debts if you are eligible, while Chapter 13 is better if you need to keep your home or catch up on payments. Understanding the differences can help you determine which bankruptcy chapter is in the best interest.
Why Do People Consider Bankruptcy in Tennessee?
Many Americans find themselves in debt for a variety of reasons. Some people find it tempting to charge things they may not otherwise be able to purchase, as credit cards can provide the illusion of affordability. But for others, more serious events can creep in and destroy a financial situation. A job loss can pose tremendous financial stress on a family. And unforeseen medical expenses may be greater than someone’s income can handle.
Common Causes of Overwhelming Debt
- Sudden loss of income due to layoffs and reduced hours
- High medical bills not covered by insurance
- Credit card overuse
- Divorce or separation, leading to financial strain
- Unexpected emergencies, like home repairs, car accidents, or veterinary bills
What Is the Difference Between Chapter 7 and Chapter 13 Bankruptcy in Tennessee?
Under federal bankruptcy law, Chapter 7 and Chapter 13 are incredibly different. Chapter 7 focuses on the discharge of unsecured debts, while Chapter 13 reorganizes debts into a repayment plan.
Depending on the unique circumstances surrounding your debt, filing for bankruptcy may be the answer to getting back on track financially. If you decide to take that route, Chapter 7 or Chapter 13 might be an option for you. A general understanding of the differences between the two may help you decide which would best meet your needs.
Both options could potentially help your financial situation by reducing your debt and stopping creditor harassment. However, there are some defining characteristics separating your bankruptcy options.
How Does Chapter 7 Bankruptcy Work?
If you qualify to file for Chapter 7 bankruptcy, most of your property will be sold to pay off your debts. This is why it’s often referred to as a liquidation bankruptcy. The ability to keep your house or car may depend on the specifics of your case, such as the value of these items, allowable exemptions, and debtor arrangements. Your credit report will reflect your bankruptcy for up to 10 years.
Benefits of Chapter 7
- Eliminates most unsecured debts (often within months)
- Can stop creditor collection actions through the automatic stay
- Requires no long-term repayment plans
- Can provide fast financial resets
Drawbacks of Chapter 7
- May require the liquidation of non-exempt assets
- Must be eligible by passing a means test
- Bankruptcy will remain on your credit report longer than Chapter 13
- Not all debts are dischargeable
How Does Chapter 13 Bankruptcy Work?
Chapter 13 bankruptcy is also referred to as a wage earner’s plan. Rather than selling most of your things, you may create a plan to repay your debts over the next three to five years. For homeowners wanting to maintain their real property, Chapter 13 may provide the opportunity to stop foreclosure proceedings. You can expect this bankruptcy to reflect on your credit for up to seven years.
Benefits of Chapter 13
- Can allow you to keep your home and other property
- Stops the foreclosure and repossession in many instances
- Consolidated debts into manageable payments
- Remains on credit reports for a shorter period of time than Chapter 7
- Discharges the remaining eligible debts following the completion of the repayment plan
Drawbacks of Chapter 13
- Requires a three to five-year repayment plan
- Monthly payments must be met in order for the plan to remain in effect
- Total debt repayment may be higher than Chapter 7
- Chapter 13 is generally more expensive and complex
Which Bankruptcy Option Is Better for You?
If you are considering filing for bankruptcy in Memphis or the surrounding Shelby County area, understanding which bankruptcy option works best for you is critical to reaping the full benefits of this process. As such, you’ll need to carefully consider which plan is your best option to help you receive a financial fresh start.
Factors to Consider When Choosing a Bankruptcy Chapter
- Your current income and job stability
- The amount of debt you owe
- The primary type of debt you owe
- Your ability to commit to long-term payments
- Eligibility requirements in accordance with federal law
When Chapter 7 May Be the Better Choice
- You have a limited income and fewer assets
- You need immediate debt relief
- You are unable to realistically repay your debts over time
When Chapter 13 May Be the Better Choice
- You have a steady income
- You wish to avoid the foreclosure of your home or the repossession of certain assets, like your vehicle
- You need time to get up to date on repayments
Contact an Experienced Memphis Bankruptcy Attorney
Though filing for bankruptcy can help clear your debt, you might have many things to consider as you decide which plan is best for you. As you explore your options, you might consider what you’re willing to give up in order to get a fresh start. That is why it is in your best interest to connect with an experienced attorney at Arnold Law Firm. Our firm understands how difficult it can be to navigate the bankruptcy process. Contact us today to learn how we can help you.
