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Tennessee consumers favor Chapter 13 over Chapter 7 filings

Although overall bankruptcy filings in West Tennessee increased in the past 3 months, Chapter 7 filings slightly decreased. That may be good news for Tennessee's economy.

According to one commentator, Chapter 7 filings may have been more popular in 2009-10 because many Tennessee workers had lost their jobs and their home values had declined. For those individuals, it made sense to liquidate any remaining assets in order to eliminate their unsecured debts.

Chapter 7 filings are commonly used when a debtor doesn't have much property beyond basic necessities, doesn't have much income left over after paying expenses, and who needs to have certain unsecured debts discharged. Debt secured by collateral will typically not be dischargeable unless the property is given up, although certain assets -- such as a home or car -- may be exempt up to a certain value.

By 2012, however, the financial outlook had improved. For many Tennessee workers, home values had stabilized and they had returned to work. In such event, Chapter 13 would be a better option, as it provides a court-ordered plan for keeping property while spreading out payments to creditors over 3 to 5 years.

If you are struggling to pay your expenses, an attorney can advise you of the protections against creditors that a bankruptcy filing can provide. Both a Chapter 7 and a Chapter 13 prohibit certain creditors from contacting you after your filing. The automatic stay of a Chapter 7 freezes most collection efforts against you, and creditors also won't be able to contact you after your debts have been discharged. In a Chapter 13, you typically make a monthly payment to a bankruptcy trustee, who in turn distributes the proceeds to creditors according to the terms of the Chapter 13 plan. An attorney can help you decide which option is best for you.

Source: Daily News, "Q2 Bankruptcies up 6.5 Percent," Aisling Maki, July 20, 2012

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