Lawyers People Love helps shed light on the types of bankruptcy available to Tennessee residents
There are many reasons individuals might consider filing bankruptcy in Nashville, TN. Perhaps an illness led to a loss of income and mountains of medical debt. The economic downturn due to the pandemic may have cost you your job. These are just two common reasons among the millions why you need to file bankruptcy.
At Lawyers People Love, we know life’s circumstances can often get in the way of paying debts. The money you owe piles up. You accrue late fees and extra interest. Before long, you’re buried with no way out but to file bankruptcy.
Before you pull the bankruptcy trigger, though, you need to make sure you’ve weighed your options and chosen the right kind of bankruptcy. Lawyers People Love have prepared this easy-to-understand guide to the three main kinds of bankruptcy available to individuals and which type you should consider filing.
What is bankruptcy and who can file?
Bankruptcy is a legal process individuals and businesses can use to help them manage or eliminate debts. When someone “declares bankruptcy,” they’re essentially saying, “I have debts and no way to pay them.”
When you file bankruptcy, the court steps in to protect you and your income from collection agencies, creditors, and banks that may be coming after your money to pay off debts. Your rights and the process of filing bankruptcy in Nashville, TN are outlined in federal law.
With a basic understanding of those rights and the processes, you’ll be able to make an informed decision whether to file for bankruptcy or to pursue some other path to managing your debts. Before you get to the kinds of bankruptcy in Nashville, TN, there are a few key terms you need to know.
Key terms for understanding bankruptcy
Before you dig into bankruptcy, there are a few terms it’s helpful to know. Understanding the vocabulary can help you make the most informed decision about the kind of bankruptcy you need to file. These are a few definitions provided by the United States Courts.1
debtor: A person who has filed a petition for relief under the Bankruptcy Code.
automatic stay: An injunction that automatically stops lawsuits, foreclosures, garnishments, and all collection activity against the debtor the moment a bankruptcy petition is filed.
bankruptcy petition: The document filed by the debtor (in a voluntary case) or by creditors (in an involuntary case) by which opens the bankruptcy case. There are official forms for bankruptcy petitions.
discharge: A release of a debtor from personal liability for certain dischargeable debts set forth in the Bankruptcy Code.
liquidation: A sale of a debtor’s property with the proceeds to be used for the benefit of creditors.
dischargeable debt: A debt for which the Bankruptcy Code allows the debtor’s personal liability to be eliminated.
nondischargeable debt: A debt that cannot be eliminated in bankruptcy.
secured debt: Debt backed by a mortgage, pledge of collateral, or other lien; debt for which the creditor has the right to pursue specific pledged property upon default.
U.S. trustee: An officer of the Justice Department responsible for supervising the administration of bankruptcy cases, estates, and trustees; monitoring plans and disclosure statements; monitoring creditors’ committees; monitoring fee applications; and performing other statutory duties.
So how do these terms all work together to explain bankruptcy?
A debtor files a bankruptcy petition requesting to discharge all dischargable debts. They may seek to avoid liquidation of property to pay nondischargable debts like secured debts. The process is administered by the U.S. trustee.
Put another way: You file bankruptcy to cancel debts that can be canceled and to protect some of your assets like your house or car from seizure and sale. It’s all managed by an officer of the court who oversees the process.
What are the kinds of bankruptcy in Nashville, TN?
Generally speaking, individuals file bankruptcy for two reasons: either they want to reorganize how they’re paying their debts, or they need to eliminate the debts all together. The two primary kinds of bankruptcy available to these individuals are Chapter 7 and Chapter 13. A third type, Chapter 11, is available to businesses. Here’s a brief overview of each:
Chapter 7 Bankruptcy
Unsecured debts like credit cards, medical bills, and unpaid household bills can pile up quickly. Late fees, additional interest, and surcharges only increase the amount you owe. Chapter 7 Bankruptcy cancels unsecured debts and does not require the debtor to file a repayment plan
With Chapter 7, individuals may be required to sell off assets like vehicles, collectibles, even furniture to settle their debts. Because this kind of bankruptcy and liquidation can be traumatic, it is often called “bankruptcy of last resort.”
Chapter 13 Bankruptcy
Most individuals seeking bankruptcy have an income, are able to provide for their families, and may even own a home. They just got in over their heads with consumer debts, medical bills, and monthly payments. That’s where Chapter 13 filings can be helpful.
When filing Chapter 13, collections activities, foreclosure, and repossessions stop. The court works with the debtor, their attorney, and creditors to create a repayment plan based on the individual’s ability to pay. Over the next five years, you’ll make regular payments, which the U.S. Administrator will distribute to creditors. At the end of five years, remaining debts are discharged.
Chapter 11 Bankruptcy
A third common type of bankruptcy is Chapter 11. Available exclusively to businesses, it is available to corporations, partnerships, and other kinds of enterprises and allows these organizations to “reorganize” debts in a manner similar to Chapter 13 does for individuals. Unless you’re considering filing bankruptcy for your business, Chapter 11 isn’t an option for you.
One key factor to consider when you’re looking at bankruptcy is that you don’t get to discharge secured debts and keep the asset securing them. For example, if you own a home and the home is mortgaged, that’s a secured debt. Filing bankruptcy will not get you out of your mortgage and let you keep your house at the same time.
Generally speaking, secured debts are not dischargeable. The asset securing them must be forfeited to make that debt go away.
Chapter 7 or Chapter 13: Which kind of bankruptcy is right for me?
“What kind of bankruptcy is right for me?” is the most common question we hear at Lawyers People Love. While this is a complicated question, it has gotten a lot simpler in recent years. That’s because bankruptcy today is means tested.
In the past, pretty much anyone could declare bankruptcy, file, and discharge some of their debts. However, that changed when the federal government established the means test, a formal, written process debtors must go through to determine whether or not they are actually bankrupt.
The means test asks a series of questions about your possessions, the money you owe, your income, and your net worth. After you’ve taken the means test, you’ll know whether you’re eligible to file bankruptcy and, in many cases, you’ll have a much clearer picture of your overall financial situation, and your bankruptcy lawyer can point you to the right filing.
That being said, if you own a home, a couple of cars, and are just trying to get a better handle on paying down credit cards, medical bills, or other unsecured debts, Chapter 13 bankruptcy is probably the path you’ll take. If you don’t have a comfortable income, don’t own a home, and don’t have a lot of secured debts, you may qualify for Chapter 7.
Ready to get started on your road to financial recovery?
If you think you’re ready to begin the process of filing bankruptcy in Nashville, TN, Lawyers People Love is here to help. Call us today to schedule an appointment. Or, if you’d prefer, you can email us to get started.