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)
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.
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.
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.
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.