There are several situations where a Chapter 13 is preferable to a Chapter 7. A Chapter 13 bankruptcy is generally the proper choice if you are behind on your mortgage, vehicle or business payments and you want to keep property not protected by your Tennessee exemptions. A Chapter 13 bankruptcy allows you to make up the overdue payments over a period of 3-5 years and to reinstate the original loan agreement. Also, people may file Chapter 13 bankruptcy because they have too much income to file Chapter 7 bankruptcy or have the kind of debt that is non- dischargeable in a Chapter 7.
Some Chapter 7 Advantages in Tennessee:
1. You receive a complete fresh start. After the bankruptcy is discharged the only debts you owe will be for secured assets on which you choose to sign a “Reaffirmation Agreement.”
2. You have immediate protection against creditor’s collection efforts and wage garnishment on the date of filing.
3. Wages you earn and property you acquire except for inheritances after the bankruptcy filing date can be yours, not the creditors or bankruptcy court.
4. There is no minimum amount of debt required.
5. Your case is often over and completely discharged in about 3-6 months.
Some Chapter 7 Disadvantages in Tennessee:
1. You lose your non-exempt property which is sold by the trustee. If you want to keep a secured asset, such as a car or home, and it is not completely covered by your exemptions then Chapter 7 is not an option.
2. If facing foreclosure on your home, the automatic stay created by your Chapter 7 filing only serves as a temporary defense against foreclosure.
3. Co-signors of a loan can be stuck with your debt unless they also file for bankruptcy protection.
4. If you filed a prior case and received a discharge of your debts, you can only file a second Chapter 7 bankruptcy case eight years after you filed the first case.
Some Chapter 13 Advantages in Tennessee:
1. If you choose and you can afford the payment plan, you can keep all your property, exempt and non-exempt.
2. While debts are not canceled as in a Chapter 7 discharge they can be reduced under a Chapter 13 payment plan.
3. You have immediate protection against creditor’s collection efforts and wage garnishment.
4. More debts are considered to be dischargeable (including debt you incurred on the basis of fraud and credit card charges for luxury items immediately prior to filing).
5. If the Chapter 13 plan provides for full payment, any co-signers are immune from the creditor’s efforts.
6. You have protection against foreclosure on your home by your lender as long as you meet the terms of the plan.
7. You have more time to pay debts that can’t be discharged.
8. You can separate your creditors by class where different classes of creditors receive different percentages of payment. This enables you to treat debts where there is a co-debtor involved on a different basis than debts incurred on your own.
Disadvantages of Chapter 13 in Tennessee:
1. You create a payment plan where you use your post- bankruptcy income. This ties up your cash over the Chapter 13 plan period.
2. Legal fees are higher than Chapter 7 since a Chapter 13 filing is more complex and last several years.
3. Your plan and therefore your debt will last for 3 to 5 years.
4. You are involved in the bankruptcy court process for the term of the 3-5 year plan.
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