What is Bankruptcy?
Bankruptcy helps individuals and businesses deal with debt that has grown out of control and impossible to repay. Federal judiciaries decide whether to allow the bankruptcy claim filed in bankruptcy court.
Money owed can be secured debt (for example, a property that can be seized) or unsecured debt (for example, credit card or medical debts). Bankruptcy gives debtors a second chance by restoring debts to a reasonable level and paying creditors by making monthly payments, through liquidation of the debtor’s property, or both.
Deciding whether you qualify for bankruptcy and which type of bankruptcy to file for is difficult and best done with professional help. Most bankruptcy claims in Nashville, TN, fall into three chapters of the federal bankruptcy code: Chapter 7, Chapter 11, and Chapter 13.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is a remedy for accumulating more debt than can be repaid. Chapter 7 bankruptcy applications are filed by individuals, married couples, business partners, businesses, and other entities.
A means test is the first step toward determining eligibility for Chapter 7 filings. In this circumstance, individual or business income from the previous six months is compared to the state’s median incomes for a family or business of the same size. This is weighed against personal or business debts to calculate the filer’s ability to repay.
Calculating eligibility after filing chapter 7 bankruptcy is not straightforward. Formulas for the calculations are complicated and online calculators often yield incorrect results. The means test computations should be completed by a bankruptcy attorney who understands the fine details of calculating income and has access to accurate figures about the medians in the state.
Beyond passing the means test, applicants for Chapter 7 bankruptcies have to provide additional information to see if they qualify. These include:
- The sum owed and the type of claim for each creditor.
- The source, timing, and sum of all the applicant’s income.
- Details of the applicant’s property holdings.
- Details of the applicant’s regular monthly expenses.
A consultation with a bankruptcy attorney will help you understand whether you or your business are good candidates for Chapter 7 filings.
Chapter 11 Bankruptcy
These bankruptcies are just for businesses that are experiencing great difficulty meeting debt obligations. A Chapter 11 bankruptcy is a reorganization of a business under federal court supervision. The reorganization is in the creditors’ interest, and every financial decision the business makes afterward has to be made with the bankruptcy court’s permission. Businesses under Chapter 11 bankruptcy can continue to operate while paying off the debt.
Chapter 11 is a very expensive bankruptcy to undertake. It should not be attempted without the guidance of a very skillful bankruptcy attorney and should only be considered if other methods of debt reduction are impossible.
Chapter 13 Bankruptcy
Individuals with significant assets but whose debts have become unmanageable can opt to file for bankruptcy under Chapter 13. This protects assets, and the debts are serviced via an agreed-upon three- or five-year repayment plan.
Not every person with high debt can qualify for a Chapter 13 bankruptcy. Here are the rules of eligibility:
- Amount of debt. The debt in question cannot be too high. If it is, a repayment plan cannot realistically cover enough of it to work.
- Income. A successful applicant for Chapter 13 bankruptcy must prove he or she can pay both regular household expenses, including child support, and the repayment plan. A regular income that is sufficiently high is necessary for this.
- The filer is not a business. This is bankruptcy for people, not for business entities.
To file for bankruptcy under Chapter 13 is even more complicated than under Chapter 7. Also, before submitting the filing documents, applicants must complete mandatory counseling in credit management run by a government-approved debt or credit counseling agency and then submit a certificate to prove it. In addition to helping applicants in the future, this course is one of the steps to evaluate whether your income can cover enough of your debts. Successful applicants will complete another compulsory course after filing.
Contact a Professional
As you can see, a bankruptcy case is a complicated thing. An experienced bankruptcy attorney understands bankruptcy codes and can advise clients if they qualify for bankruptcy and which chapter of the bankruptcy code will work best for their situation.
The experienced team at The Pope Firm can guide you through the bankruptcy process, helping you protect assets and credit scores while discharging your debt. Call today at (865) 324-0456 to speak to a friendly representative.
The Different Types Of Bankruptcy
Depending on your situation, there are different types, officially known as “chapters” of bankruptcy, that you can file for. These different chapters of bankruptcy provide different results for different cases, and it’s important to have some knowledge on these chapters before filing for bankruptcy.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is a commonly filed for chapter of bankruptcy and is intended for use by low to moderate income individuals with more debt than they’ll ever be able to repay. If properly executed, this chapter of bankruptcy can eliminate most or all of a person’s unsecured debt. If you’re eligible, Chapter 7 could be a great debt relief solution for you.
Chapter 13 Bankruptcy
Another great debt relief solution is Chapter 13 bankruptcy, that works great for people that aren’t eligible for chapter 7 bankruptcy. This chapter allows the debtor, or person that has borrowed money, to restructure their payment plans to be more manageable. At the end of this payment plan, most unsecured debts are discharged, or eliminated. This is sure to provide some much-needed breathing room for those people that feel in over their head, and are in need of some debt relief.
If you need assistance with personal or business bankruptcy and filing in Tennessee, reach out to The Pope Firm and Charles Pope, Attorney At Law.
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Frequently Asked Questions
Bankruptcy occurs when an individual, business, or other entity declares the inability to repay its debts. If you file for bankruptcy, that means that debt collectors must pause attempting to collect debts from you. Bankruptcy often allows you to erase most, if not all, of your debts.
There are two types of debts, unsecured and secured. Some examples of unsecured debts are credit card bills, medical bills, or taxes. Secured debts can include car loans or mortgages, which use the purchased item as collateral. In many cases, filing for bankruptcy can keep this collateral protected and prevent foreclosure of your home or repossession of other assets.
Bankruptcy is governed by federal legislation under the Bankruptcy Code, which falls under the greater United States Code. Both federal law and local law inform the bankruptcy procedure. Federal bankruptcy judges, appointed by the United States court of appeals, preside over court proceedings in these cases. In court, the judge and a court trustee, review your finances to determine whether or not to discharge the debts at hand.
Each state has one or more bankruptcy courts. Tennessee has six bankruptcy courts throughout the state.
Filing for bankruptcy can be a daunting process, and working with a firm with expertise in the field can provide you with necessary guidance.
There are several types of bankruptcy. Most individuals, married couples, and small businesses choose to file under Chapter 7 or Chapter 13.
What are the Differences Between Chapter 7 and Chapter 13?
The primary difference between these two types is that Chapter 7 bankruptcy allows an entity to fully discharge its debts in a short period. A Chapter 13 bankruptcy involves reorganizing debts and creating a plan to repay those debts over an allotted time. After that time, Chapter 13 eliminates most of the remaining debts.
Chapter 7 bankruptcy is typically filed by those with very limited income and unsecured debts, the most common of which is medical bills. Chapter 13 bankruptcy is most often filed by higher income bracket individuals and those with more assets, such as a car or a home. The motivation for filing Chapter 13 bankruptcy is often preventing assets from being repossessed or home foreclosure due to outstanding debts.
What Other Types of Bankruptcy Are There?
Two other types of bankruptcy are Chapter 11 and Chapter 12.
Chapter 11 primarily applies to larger companies and corporations, but sometimes it is the right choice for small businesses as well. Chapter 12 applies to those who are considered family farmers.
Various considerations get factored into who should file bankruptcy. Filing bankruptcy may be the right choice for you if you are overwhelmed by debt. Regardless of what type of bankruptcy you file, as soon as the process begins, you are granted an automatic stay. A stay is an injunction that prevents creditors from collecting any debts for an allotted time. An automatic stay halts the process of, for example, foreclosing on a home or repossessing a vehicle.
A Chapter 7 bankruptcy will discharge most of your debts. Filing Chapter 7 is appropriate for those who make less than the median household income in Tennessee and whose assets would not be at risk. In this situation, your non-exempt property is sold to pay off creditors.
Chapter 13 bankruptcy allows you to create a plan to repay your debts. If you have non-exempt property used as collateral in secured loans, you can restructure your finances to pay off any relevant debts over the next three to five years. Chapter 11 functions in a similar way, but is exclusively for businesses.
Filing for bankruptcy can provide a fresh start for those bogged down with debt, either by restructuring finances or discharging debts entirely.
How bankruptcy affects business depends upon the type of bankruptcy filed.
Businesses classified as corporations, partnerships, or LLCs can file Chapter 11 bankruptcy. Chapter 11 allows for debt restructuring, while the business stays open. As in Chapter 7 and Chapter 13, an automatic stay activates as soon as your bankruptcy period begins. In an automatic stay, creditors cannot try to collect money or other assets from you.
During this period, you work with your lawyer to restructure your debts and develop a plan to get your business back on track. This plan must be approved by some of your creditors and a bankruptcy court to go forward. You will be able to repay your debts over several years.
Filing Chapter 7 bankruptcy discharges all of your business’s debts by liquidating your assets. The entire process can be completed quickly, often in several months. Chapter 7 allows for the discharge of most debts, excluding government taxes and fines.
Only individuals can file for Chapter 13 bankruptcy. Thus, although businesses cannot file, you can file Chapter 13 as the sole proprietor of your business.
When you decide to begin the bankruptcy process, the first step is to find a lawyer who is an expert in filing bankruptcy in Tennessee. Hiring a bankruptcy lawyer can indeed be expensive, but it is worth the cost. This professional can guide you through what type of bankruptcy is best for your situation and what to expect throughout the process.
- Collect your documents: It is important to have everything from your paystubs to your credit report available before starting.
- Take the means test. This test will determine if you are eligible for Chapter 7 bankruptcy and help guide you in making a repayment plan for Chapter 13 bankruptcy.
- Meet with a credit counselor. In the state of Tennessee, most individuals must meet with a credit counselor from an approved provider before filing for bankruptcy.
- Fill out bankruptcy forms. If working with a lawyer, you can expect they will use online programs to help you file your paperwork.
- Pay your filing fee. It costs $335 to file for bankruptcy in Tennessee. Waiver of the fee is possible in some cases, but it is uncommon. However, it is possible to pay the fee in several installments instead of the entire balance upfront.
Declaring bankruptcy wipes out many debts, but not all.
What Debts are Usually Covered by Bankruptcy?
Bankruptcy can clear most unsecured debts, including:
- Credit card bills
- Medical bills
- Overdue utility payments
Bankruptcy can also clear many secured debts, but it depends on whether you file for Chapter 7 or Chapter 13 bankruptcy. For Chapter 7, you will have to give up any non-exempt items you put up for collateral. For Chapter 13, they will become part of your repayment plan.
What Debts Are Not Covered by Bankruptcy?
- Child support
- Alimony obligations
- Those related to personal injury or death in a drunk driving case
- Any debts not listed on your bankruptcy papers
No type of bankruptcy covers these debts. If you file for Chapter 7, they remain outstanding. Under Chapter 13, you pay these debts along with your other debts.
What Debts May Be Covered?
Bankruptcy rarely covers student loan debt. However, it may be in some cases with proof of undue hardship.
Tax debt is also rarely covered, but bankruptcy may cover certain old unpaid taxes.