If you or your business are having financial difficulties, filing for bankruptcy is a helpful option that can aid you to get your life back in order. There is a lot of stigmas and lack of knowledge surrounding bankruptcy and what it entails. It is a lot simpler and more helpful than most people think. If you are having financial issues and are considering bankruptcy as an option, you can contact us at Griffin & Davis, PLLC to get more information about bankruptcy procedures.
Different Chapters of Bankruptcy
There are different forms of bankruptcy which one can file under. Each has its own different benefits. Depending on your personal or business’ financial situation, you may only be able to file for one type of bankruptcy. Knowing the different chapters of bankruptcy, and the benefits and drawbacks of each, will help you understand which type is most applicable for your situation and which will be most helpful for you.
Chapter 7 bankruptcy completely wipes out your personal debt. Under Chapter 7, your assets are taken and sold. They are then distributed to your creditors. Assets which are exempt will still be sold, but the money will be returned to you. Chapter 7 bankruptcy is helpful if you have severe credit card debt or other debts and little assets.
- Complete “fresh start” on your debts; all debts, except ones not covered under Chapter 7 bankruptcy, will be wiped out
- Eliminates credit card debt and other important debts
- Creditors will not be able to contact/harass you over money owed
- Fast turnaround; cases often over and discharged after 3 to 6 months
- Wages earned after filing for bankruptcy are yours and cannot be taken by creditors
- Can use for personal or business debts
- Will not eliminate certain debts, such as child support, student loans, fraudulent debts, and certain taxes; those remain even after the bankruptcy process is completed
- Can lose property that is non-exempt, such as houses or cars
Under Chapter 13, you can protect property/assets and do not have to sell them. However, to qualify for Chapter 13 bankruptcy, you cannot be earning more than the median income for the state of Tennessee. Through this type of bankruptcy, part of your income goes into a repayment plan and then certain debts will be wiped out. This type of bankruptcy can be useful if you are trying to stop your house from being foreclosed on, make up missed payments, or pay back taxes.
- Able to keep all your property
- Debts can be severely reduced under Chapter 13 bankruptcy
- Protected against creditors
- Can file at any time and make repeat filings
- Must not be earning more than the median income for the state of Tennessee
- Cannot use with businesses, only for personal finances
- Only certain debts may be wiped out, such as credit card balances, medical accounts, and personal loans
- Can take a long time; up to 3 to 5 years
Chapter 11 bankruptcy can be filed by individuals or corporations. They are used more rarely than Chapter 7 and 13 bankruptcy, but can be very lucrative for those filing it. This type is also used most often by corporations and can assist major companies that fall into major debt. They have a low success rate, but allow those who file for it to reorganize their financial affairs.
- Normally takes a few months to two years for cases to finish
- Businesses can still continue and debtors can continue daily business activities
- Can allow debtors to reorganize financial affairs
- Bankruptcy court takes over business’ major decisions, such as the sale of assets, shutting down or expanding business operations, and entering/breaking a lease
- Can have a low rate of successful cases
Tennessee Bankruptcy Exemptions
Under Tennessee law, there are certain properties and assets that you can protect from liquidation when you file for bankruptcy. In Tennessee, you cannot use federal bankruptcy exemptions and must use the state bankruptcy exemptions instead. In addition, if a married couple files for joint bankruptcy, they can double the amount of exemption if they both own their property. There are a few common bankruptcy exemptions people can have under Tennessee law, which include:
- Homestead Exemption
- you can exempt up to $5,000 of equity on your home, $7,500 for joint owners, and up to $25,000 if you have one minor child in the household
- If you are 62 or older, you can receive $12,500 of equity
- Can exempt life estate
- Can exempt 2-15 year lease
- Spouse/children of the deceased former owner can claim a homestead exemption
- 401ks, money purchase plans, and defined benefit plans may be exempt
- State and government employees, teachers, and public employees can have their pensions exempt
- Personal Property
- Burial plots up to one acre are exempt
- Bible, school books, family photographs are all exempt
- Personal injury recovering up to $7,500 and wrongful death recoveries up to $10,000 are also exempt
- Wildcard Exemptions
- In Tennessee, you are allowed to exempt up to $10,000 of personal property using a wildcard exemption
I want to file for Chapter 7, but I need my car/house. Is there anything I can do to keep it?
Yes. If you enter what is known as a Reaffirmation Agreement, it is possible to keep your house, car, and other items that you specify. You will fill out and sign a reaffirmation agreement that states you agree to keep on that debt. After signing the agreement, you also cannot bankrupt/wipe-out that debt for another eight years.
How will filing for Chapter 7 affect my credit score?
It can take ten years for the bankruptcy you file to be removed from your credit score if you file for Chapter 7 bankruptcy. With Chapter 13 bankruptcy, it will only appear on your credit report for seven years after the initial filing, which is only two to four years after finishing the Chapter 13 repayment plan.
What happens in bankruptcy court?
In order to declare bankruptcy, you must file a petition with a bankruptcy court. The bankruptcy court does not put debtors on trial. Instead, they oversee the case and make sure creditors are receiving the compensation they require. You may never have to go in front of a judge, but may have to have a meeting with creditors, a trustee, and any attorneys you would like present. During your case, you will have contact with a trustee who reviews your financial situation and holds a meeting with creditors and yourself to divvy up compensation.
If a creditor believes the debtor is trying to get away from paying back their debt, they might file an adversary proceeding. This is a separate lawsuit on behalf of the creditors that seeks to see if the debtor has committed bankruptcy fraud. Bankruptcy fraud is a serious offense that may carry jail time and must be taken seriously.
What are some alternatives I can explore instead of filing for bankruptcy?
There are a few options to help settle your financial situation and pay debts. This is true even if you decide bankruptcy is not a good option for you. Contacting your creditors directly and attempting to make an alternative payment plan often works. Creditors mostly want money to help pay off your debts, so if you file for bankruptcy, they do not receive as much payment.
You can also enter a credit counseling plan or a debt repayment plan, where creditors may sometimes be willing to lower payments and interest. Another option can be a debt repayment loan, which is a loan that is offered to pay off creditors. You will no longer have other debts, but, of course, you will still need to pay off the debt repayment loan.
How do I file for bankruptcy?
You must first choose what chapter of bankruptcy you wish to file for. Then, you must record your sources of income, living expenses, all debts, property, tax returns for the last two years, car titles, and deeds. You or you and a bankruptcy attorney will turn in that documentation to your Tennessee federal district bankruptcy court. Later, if the judge finds your bankruptcy is not fraudulent and you have presented all the necessary information, you will have a meeting with creditors, a trustee who oversees the case proceedings, and an attorney, if you choose to figure out what will be distributed.
If you are filing for bankruptcy in the state of Tennessee, you must also go through a credit counseling course and a financial management court when your bankruptcy filing finishes.
If you are worried about undergoing bankruptcy proceedings and are not sure what steps to take, contact the law offices of Griffin & Davis, PLLC. Our bankruptcy lawyers have years of experience handling cases involving declaring the right chapter of bankruptcy, ensuring all debts are repaid, reclaiming wrongfully-taken property, and more. If you need legal advice or assistance when negotiating or dealing with bankruptcy law, reach out to our team of attorneys at (931) 837-2050 or (865) 354-3333.