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Which type of bankruptcy is right for overwhelming debt?

Sometimes Tennessee residents face financial challenges, whether through a job loss, unexpected expenses or overspending. This can cause overwhelming debt, which can lead to harassing phone calls from creditors. When it becomes impossible to stay afloat financially, many consumers turn to bankruptcy for relief. There are two options to choose from: Chapter 7 bankruptcy and Chapter 13 bankruptcy. Which one is right for your situation?

Many consumers prefer Chapter 7 because it completely eliminates debt quickly. They can be debt-free in just a matter of months, but they could lose their home, car and other assets in the process. This may be the best option for many people, but not everyone qualifies. Consumers considering this type of bankruptcy must qualify by taking and passing a means test. This test is based on the median income in the consumer's state. If they earn more than the median income and have some disposable income, then they do not qualify and must pursue Chapter 13 instead.

Chapter 7 bankruptcy, however, does not solve all of one's financial woes. It does not eliminate all debts. It also does not save a home from foreclosure and prevent the bank from repossessing one's vehicle. It can also force a person to give up unsecured property. Chapter 13, on the other hand, allows consumers to affordably repay debt so that they can hold onto their possessions. However, the consumer must have enough disposable income on hand to do so.

Bankruptcy is a huge decision that must not be taken lightly. It can cause a temporary reduction in one's credit score and it is still considered a social stigma for many, but for those who are drowning in unpaid bills and have exhausted all possible alternatives, filing for bankruptcy may be the right option.

Source: FindLaw, "Chapter 13 vs. Chapter 7 Bankruptcy," accessed Aug. 16, 2014

Source: FindLaw, "Chapter 13 vs. Chapter 7 Bankruptcy," accessed Aug. 16, 2014

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