Bankruptcy is a legal proceeding in court before a judge to determine if people overwhelmed in debts are eligible for debt discharge. Individuals, sole proprietors, and other income earners can file for Chapter 13 and almost any individual and entity can file for Chapter 7. Because bankruptcy is the last resort for financial relief, it is important that you know when to file, their differences, and how to start.
When to File for Bankruptcy?
If you’re drowning in debt and need a life jacket to swim ashore, it may be the right time to file for Chapter 7. Individuals who are extremely behind on secured and unsecured debt can find relief filing bankruptcy under Chapter 13. Not all people should file bankruptcy, if they are financially stable, but need financial counseling to better manage their finances. Those individuals who are unable to pay off their debt in less than five years because of unemployment should consider bankruptcy.
What is Chapter 7 Bankruptcy?
A major difference between Chapters 7 and 13 bankruptcy is the filing of a settlement (repayment) plan. If you file Chapter 7, three is no filing of a repayment plan. Chapter 13 bankruptcy allows you to file a repayment plan to pay off your debts. An individual planning to file Chapter 7 must first gather all their financial information, including outstanding debts, liabilities, and assets. It is feasible that you seek legal representation from an experienced attorney specializing in bankruptcy law.
Once the lawyer files for bankruptcy on your behalf, a judge and trustee are assigned to your case. They will evaluate your assets and liabilities to determine if your debt is dischargeable or not. Under the Chapter 7 bankruptcy code, only individuals can have some types of debts discharged. Individuals, corporations, and companies can file for bankruptcy under the chapter.
What is Chapter 13 Bankruptcy?
Wage-earners, including individuals and sole proprietors, can file for Chapter 13 bankruptcy. Chapter 13 is a plan that allows you to repay some or all your debts within three years. The timeline can be extended if approved by the judge presiding over the case. If your present monthly income exceeds the state median, the plan is a five-year term.
Chapter 7 discharges unsecured debts, such as credit cards, medical bills, and personal loans, while Chapter 13 gives you time to repay your off those debts by negotiating with creditors. With Chapter 7, you can keep your assets or relinquish secured debts, such as a home mortgage or an auto loan.
Between Chapters 7 and 13 bankruptcy, Chapter 13 has the best benefits and incentives compared to Chapter 7. In 2020, the bankruptcy courts had over 544,000 Chapters 7 and 13 filings. About 154,300 filings were Chapter 13 and 381,200 were Chapter 7. Only 43 percent of the cases were successful for Chapter 13 filers, whereas Chapter 7 had nearly 95 percent.
Tennesseans, if you’re questioning whether bankruptcy is the best solution for you to receive relief from your debts, contact a Tennessee attorney. Discuss your financial situation and options in a free 20-minute consultation. Chapters 7 and 13 Bankruptcy have the benefit of bringing financial relief to start fresh all over again. Chapter 13 has better benefits, allowing debtors to stop home foreclosure proceedings, negotiate delinquent mortgage payments, and lowering plan payments.