An overview of the different types of bankruptcy available in Tennessee

On behalf of Bill Maddox

Last year, Tennessee led the nation in bankruptcy filings. As 2014 gets underway, many Tennessee residents are still struggling with an oppressive debt load.

Bankruptcy can be the only way to free yourself from debt and get a fresh start. But which type of bankruptcy is best for you? For most Tennessee residents, three kinds of bankruptcy will be the most relevant: Chapter 7, Chapter 13 and Chapter 11.

Chapter 7 Bankruptcy

Chapter 7 is the most common type of consumer bankruptcy. In a Chapter 7 case, most types of debt will be quickly discharged. Chapter 7 is the most expedient bankruptcy option. The potential drawback of Chapter 7 is that it may involve liquidation, in other words, the sale of nonexempt assets to partially repay creditors before debt is discharged. However, there are a number of generous Chapter 7 exemptions for consumers under Tennessee or federal law, and many Chapter 7 filers do not have to give up any property at all.

Chapter 7 bankruptcy is available to businesses as well. Why would it be advantageous to file for Chapter 7 bankruptcy rather than simply locking the doors and filing for business dissolution with the state? If a business has outstanding obligations, just closing the business may not stop creditors. By filing a Chapter 7 bankruptcy case for their business, business owners may be able to ensure that business creditors are unable to reach personal assets.

Chapter 13 bankruptcy

Chapter 13 bankruptcy is available to consumers who have a regular income. In a Chapter 13 case, the filer, with the help of his or her Chapter 13 attorney, will develop a repayment plan that spans a three to five year term. Under the plan, debts will be consolidated, and often, payments will be lowered. If the filer lives up to the terms of the plan, at the end of the three to five year term, most types of remaining debt will be discharged completely. Chapter 13 filers will typically pay only pennies on the dollar on their unsecured debts.

Chapter 13 can be particularly useful in defeating a foreclosure action. As soon as you file for bankruptcy, a legal device known as an automatic stay goes into effect. An automatic stay stops all creditor collection actions, including foreclosure. The automatic stay gives you time to address your mortgage issues. As long as you make up for delinquent mortgage payments over time and make all mortgage payments that come due during the course of your Chapter 13 plan, you can defeat the foreclosure action.

Chapter 11 Bankruptcy

Chapter 11 bankruptcy primarily involves reorganization for businesses. The Chapter 11 process is similar to the Chapter 13 process. A repayment plan is developed, it is approved by the court and assets are retained by the filer. At the end of the repayment term, remaining debt obligations are eliminated.

Chapter 11 may be an option for certain individuals as well. Those with a particularly high income, for instance, may not qualify for Chapter 7 or Chapter 13, but could reorganize debt through a Chapter 11 filing.

Talk to a Tennessee bankruptcy attorney

You might have an idea of which type of bankruptcy would be a good fit for you, but only an experienced attorney can assist you with a more in depth analysis. Get in touch with a Tennessee bankruptcy attorney today to explore which type of bankruptcy is right for your situation and to begin building your bankruptcy case.