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Filing for bankruptcy offers fresh start for consumers

Tennessee continues to have one of the highest personal bankruptcy rates in the country. Personal bankruptcy often carries a stigma but filing for bankruptcy can help individuals who are drowning in debt.

Bankruptcy laws help individuals with significant amounts of debt receive equal treatment from debt collectors and give them the opportunity for a financial fresh start. For people in debt, bankruptcy can provide relief from the stress of burdening debt.

Filing for bankruptcy can be complicated so it is important for people to understand how personal bankruptcy works and what options may be available. There are two different types of bankruptcy that individuals can consider filing: Chapter 7 and Chapter 13.

Chapter 7 bankruptcy works best for people who have little discretionary income and have few assets. Before filing for Chapter 7 bankruptcy, individuals must pass a "means" test to see if they qualify for bankruptcy. Individuals that do qualify must surrender all property that is not exempted under bankruptcy requirements. During the bankruptcy proceedings, a trustee sells the non-exempted property and the proceeds are sent to creditors. The remaining debts are discharged, meaning that creditors can no longer go after that debt.

Chapter 13 bankruptcy works better for people who want to keep their assets, including their home. People thinking about filing Chapter 13 bankruptcy should have enough income to make payments on their debts because most of their debts will not be discharged. Instead, Chapter 13 bankruptcy creates a payment plan for people to repay the debts that are not discharged by the court. Most repayment plans need to be repaid within three to five years.

People filing for bankruptcy are required to have credit counseling within 180 days to be eligible for bankruptcy. They also must take a financial management course after the bankruptcy case has been finalized.

Both types of bankruptcy offer protection from creditors as well as stop foreclosure and repossessions. However, it is important for individuals to know that bankruptcy only creates an "automatic stay" against creditors but if the bankruptcy is approved, it can help create a clear path for a debt free future.

Source: Jackson Sun, "BBB: Learn the ins and outs of bankruptcy filing," April 18, 2013

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