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What's the difference between Chapter 7 and Chapter 13?

If you are one of the many Tennessee residents who are struggling financially, you are probably doing some research on all of the debt relief options available to you. While often thought of as a last resort, bankruptcy may be the best thing for you and might resolve a lot -- if not all -- of your debt issues, depending on your situation. There are two types of personal bankruptcy offered: Chapter 7 and Chapter 13. What's the difference between the two?

Chapter 7 and Chapter 13 bankruptcy filings both work to offer the petitioner a fresh financial start. However, the methods for achieving it are different.

Chapter 7

Chapter 7 bankruptcy is often referred to as liquidation bankruptcy. If you qualify to file for this type of debt relief and your petition receives court approval, the court may discharge many of your debts. The court may also require you to liquidate some of your assets to pay off creditors.

To qualify for Chapter 7, you must meet certain income restrictions. Someone with enough disposable income to make payments to creditors might not receive Chapter 7 approval. To find out if you qualify for a Chapter 7 filing, you'll likely need to look at the means test. Your attorney can provide more information about this.

Not all debts qualify for discharge even if a Chapter 7 filing receives approval. Those you may still be responsible to pay include:

  • Certain tax debts
  • HOA fees
  • Court fees
  • Child support
  • Alimony
  • Student loans

While these may not be discharged, clearing your other debts might help free up funds to pay these financial obligations.

Chapter 13

Chapter 13 bankruptcy is generally for individuals who have the means to make payments to creditors but are unable to fully meet their debt obligations. If this type of bankruptcy filing receives court approval, you will need to submit an affordable repayment schedule that you will stick to for three to five years. At the end of your payment plan, certain remaining debts may be discharged.

Chapter 13 does not require the liquidation of assets. So, this is may be a type of bankruptcy you'd want to look into if you want to avoid foreclosure or auto repossession, or if you want to keep any nonexempt property.

Not sure what type of bankruptcy is really best for you? With some legal guidance, you can determine if you qualify for a Chapter 7 or Chapter 13 filing and if either will help you achieve the fresh financial start you desire.

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