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Important differences between Chapter 7 and Chapter 13 bankruptcy

On Behalf of | Dec 30, 2020 | Bankruptcy

If you have a mortgage, car or retirement account in Tennessee, you may hesitate to file for bankruptcy, fearing the loss of your property. Unlike many of the myths surrounding this process lead you to believe, you can often keep many of your assets. 

According to the U.S. Courts, bankruptcy can help you by discharging or modifying debt. Chapter 7 provides for the liquidation of nonexempt property, while Chapter 13 allows for the adjustment of debts. 

Fresh start plan

Chapter 7, also as the “fresh start” bankruptcy, grants a court-appointed trustee the authority to gather and sell non-exempt assets. The proceeds of the sale go to creditors, paying the total due or an agreed-upon amount. Exempt property includes the assets detailed in the bankruptcy code. Depending on your unique circumstances, that could include your home and car. Bankruptcy proceedings cannot touch retirement accounts or social security. 

You must qualify for Chapter 7 by taking a means test, which determines your insolvency. This form of bankruptcy generally takes less than six months from confirming eligibility to completion. Once creditors discharge your debts, you have no liability for them. 

Wage-earners plan

Chapter 13 utilizes a payment plan for individuals with regular income. This option may benefit individuals in situations that include underemployment or those who have overwhelming debt. In many cases, you make payments to the court for up to five years, and your trustee pays the creditors. At the end of the repayment plan, the court may discharge any remaining debt. 

If divorce is on your horizon, it is critical that you understand how bankruptcy can affect the proceedings.