Bankruptcy is the legal process of debt relief in which individuals and businesses can eliminate debts without repayment, or they can repay a portion or all of their debts in federal bankruptcy court. Bankruptcy laws not only specify how you may obtain debt relief, but they also you with many bankruptcy protections, such as your creditors not being allowed to contact you.
If you are thinking about filing bankruptcy or just want to know your options, you should first learn about bankruptcy. On our website you’ll find many articles explaining what bankruptcy is, how each type of bankruptcy works, and the protections bankruptcy gives you. Below are some common topics and questions that will help educate you about Bankruptcy, as well as a brief overview of Chapter 7 and Chapter 13 bankruptcy.
- Automatic Stay
- Bankruptcy Estate
- Bankruptcy Exemptions
- Role of the Trustee
Bankruptcy Chapters Explained
Chapter 7 Bankruptcy
Chapter 7 of the Bankruptcy Code is called the “Liquidation” chapter. The benefit of a Chapter 7 Bankruptcy is that there is no repayment plan. You can get rid of your debts without having to make any payments to them, and in some cases without having to give up any property either. When a petition is filed under Chapter 7, a bankruptcy estate is created. The estate consists of your assets as well as anything you might inherit within a certain period of time after you file. It does not include post-petition wages or lawsuits or other actions which arise after filing the Chapter 7 petition. In Tennessee, a debtor may exempt his personal property from the estate up to $10,000.00 ($20,000 for a husband and wife). Personal property includes money in the bank, furniture, and equity in vehicles. For personal property on which you are making payments, your equity in the property equals the value of the property minus the amount you owe on it. For most automobiles, the value of the automobile has depreciated to less than what you owe on the car; therefore, there is no equity in this property.
You may have put some of your personal property up as collateral for a loan from a consumer finance company. If this property falls under the $10,000 of personal property exemption, our Nashville bankruptcy lawyers might be able to remove that lien. If you have a loan that falls under this category, you should do your best to remember every piece of property you put down as collateral so we can give you your options as to dealing with these loans. Typically, the law allows us to void liens on this property.
As far as equity in the real estate is concerned, a single individual debtor can keep $5,000 of equity in her personal residence. A husband and wife can keep $7,500 in equity. The real property that you exempt in Tennessee must be your personal residence. If it is real property from which you receive rental income, and you do not live in it, you cannot claim the homestead exemption. (If you have significantly more than $5,000 or $7,500 of equity in your home and you wish to keep your home, you may need to file a Chapter 13 bankruptcy). In a chapter 13 you can keep your home, even if you have equity over and the exemption limit, as long as you pay your creditors as much as they would get in a Chapter 7 bankruptcy.
When we prepare your petition, we will go over the values you have placed on your personal and real property and advise you as to whether or not we believe you have any assets which a trustee could take and liquidate to benefit your creditors. The value of a debtor’s personal assets is normally what a trustee could get at an auction sale which can be described as a liquidation sale. You should estimate what you would sell these items for and place a value on them using this standard. In the vast majority of Chapter 7 cases, there are no assets. Filing a chapter 7 petition prevents you from filing another chapter 7 petition for a period of eight (8) years. If you need help from the bankruptcy court dealing with the debts in the eight year period after your chapter 7 discharge, your only choice is to file a chapter 13. A chapter 13 can be filed within this eight year period.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy normally allows you to keep your property, such as homes, cars, and furniture while allowing you to pay some or all of your unsecured debts, such as medical bills and credit cards. Chapter 13 bankruptcy allows you to pay your debts at a rate you can afford rather than a rate the creditors want you to pay. In Chapter 13, even if you are behind on your car or home payments, you can keep them over the objections of creditors. This is different from a chapter 7 where the creditor can take back the car, home, or furniture if they want to even if you are paying for it on time. In Chapter 13, you can normally lower your payments on furniture, sometimes as much as 50% or more. On homes, the regular mortgage payment stays the same, but you can catch up on the payments you have missed.
Chapter 13 consolidates all of your debts. We calculate and propose a repayment plan to the Court and the payment will then come out of your paycheck automatically to the Chapter 13 Trustee. The Chapter 13 Trustee will the send the money to your creditors each month. Normally, secured creditors get paid first, along with any priority debts such as child support. A Chapter 13 plan may last anywhere from three (3) to five (5) years. Sometimes unsecured creditors only get a very small percentage of what they are owed, but if you complete your Chapter 13 the balance of what you did not pay is discharged. The creditors cannot call you at home or at work. They cannot send you letters, sue you, garnish your wages, or seize your property. They have to direct all contact through our office. Even if you are already being garnished or a judgment has been entered against you, Chapter 13 stops it. Foreclosures and repossessions are also stopped with a Chapter 13. In addition, the IRS can be paid through the Chapter 13, many times without penalties and interest.
If you want to learn more, please contact our bankruptcy attorneys in Nashville, TN.