Filing for Bankruptcy

The actual process of declaring bankruptcy is a federal affair, but state laws have a huge effect on what can and can’t be done in this area. This means that you’ll need to know a little bit about the process as it relates to the state.

Pre-Bankruptcy Credit Counseling

If you’re going to file for a Chapter 7 or Chapter 13 bankruptcy, then you’ll have to prove that you’ve been through a credit counseling course from an approved agency in the six months leading up to your filing.

The Means Test

Thanks to a law passed in 2005, you’ll also have to pass the “means” test. This will compare your income for the size of your household to the median here in Tennesee. If your income comes in below the median, you can file for a Chapter 7 bankruptcy and, if you decide to file a Chapter 13 instead, you can use a three-year repayment plan as opposed to the usual five.

If your income is above the median for your area, then you might qualify for Chapter 7, but you’ll have to get together information on your recurring expenses and payments on debts by completing the means test. Most who file for a Chapter 13 bankruptcy will have to do the same.

For instance, the median income for a single person household in Tennessee is $37,967 while for three people the number is $51,642.

The forms required to do this are:

Form 22A Statement of Current Monthly Income and Means Test Calculations (for Chapter 7 Bankruptcy.)

Form 22C Statement of Current Monthly Income and Calculation of Commitment Period and Disposable Income(for Chapter 13)

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Local Bankruptcy Forms

In some cases and jurisdictions, you’ll be required to fill out some extra forms. To determine if your court will require these, contact the Johnson City clerk’s office to make sure.

Exemptions

Tennessee has its own set of exemptions, and you’ll need to put them together when you’re filing.

The primary exemptions are as follows:

Homestead: $5,000 or $7,500 for joint owners. You can also claim a life estate or 2-15 year lease. The limit for those over the age of 62 is $12,500 for single people and $20,000 for those who are married. The total becomes $25,000 if both parties in a marriage are over the age of 62.

Personal Property: Clothing, storage containers, school books, pictures, and bibles are covered under the personal property exemptions, as are health savings accounts, health aids, and settlements up to $7,500 in personal injury claims. Wrongful death recoveries of up to $10,000 dollars are also exempted.

You may also keep a burial plot of up to an acre.

Wages: You can exempt the larger of the following

  • 30 times the federal minimum wage
  • 75% of weekly income

On top of this, you may also keep $2.50 per week per child. It’s up to the judge’s discretion to allow for the individual to keep more in the case of a, particularly low income.

Pensions: Tax exempt retirement accounts, as well as those of public employees, teachers, and state and local government employees,  are exempt.

Tools of the Trade: You may retain up to $1,900 worth of tools, books, and other things which are crucial to your trade.

Insurance: You may retain disability insurance, as well as disability or illness benefits. Life insurance is also exempted, as well as fraternal society benefits.

Miscellaneous: You may keep educational scholarship trust funds and prepayment plans.

Wildcard: Up to $10,000 of personal property can be exempted.

The Types of Bankruptcy Available in Tennessee

There are a few different types of bankruptcy which you can file for depending on your personal situation. Each of them has their own advantages and disadvantages when it comes down to it.

Chapter 7 bankruptcies are used to wipe away pretty much all of your unsecured debts. This option shouldn’t be taken lightly, however, as it can only be filed for once every seven years and the effects on your credit are quite devastating.

Filing for a Chapter 7 will require you to give up all property not covered under possessions as well. Most people who are at the point of taking this option will find themselves without any assets left to sell, and this leads to a “no-asset” bankruptcy.

Chapter 11 can be used by a few individuals, such as a business, who has to clear up large debts.

Chapter 12 is a special type of bankruptcy which is reserved solely for family farmers.

Chapter 13 bankruptcies are a longer process. Instead of giving up your assets you’ll be forced to live on a strict budget that is monitored closely by the bankruptcy court trustee. If you fail to make your payments, then the debts you were seeking to absolve will remain in place.

It’s most commonly used by those who have fallen far behind on secured debts such as mortgages, and want to use a Chapter 13 to catch up over time. The means test is used to determine whether or not you’ll be able to qualify for this type.

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Filing for Bankruptcy and Choosing an Attorney

You can use the Court Locator to easily find the place closest to Johnson City and get the process started, but there are a couple of things you should take care of first.

Using an attorney is a vital part of this process, they’ll know the laws better than you and can help guide you through this stressful and complicated process. It’s always a good thing to have someone on your side who knows the ins and outs of this complicated piece of law otherwise big errors can be made.

Before you get with your attorney, have the following ready:

  • Records of major financial transactions for the two years prior
  • Records of monthly living expenses
  • Paperwork on all debts, secured and unsecured
  • Records of all of the property you own
  • Deeds to any property you own
  • Tax returns for the last two years
  • Documentation of any loans

Once you have your paperwork in hand, you and your lawyer can get the process started as smoothly as possible in order to get things on their way.

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