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Cleveland TN Bankruptcy Law Blog

Understanding Tennessee's bankruptcy exemptions

Anyone in our state who is wondering about the wisdom of filing a Chapter 7 bankruptcy should make an effort to understand the kinds of assets that cannot be claimed by creditors. These assets are usually referred to as "exemptions" because they are exempt from the claims of creditors.

The most important personal bankruptcy exemption is the homestead, the building used by the debtor and his or her spouse as their residence. A debtor who is filing only singly can claim up to $5,000 in the home's equity as exempt from the claims of creditors. Joint filers can claim $7,500 as exempt. For persons age 62 or older, the limit is higher: a single filer can claim $12,500 as exempt. Married filers who both live in the house can claim $20,000. If both filers are 62 or older, the limit is $25,000.

How to make a Chapter 13 bankruptcy work

Many people in Eastern Tennessee are aware that the United States Bankruptcy Code offers individuals two choices: Chapter 7, in which most debts will be discharged, or Chapter 13, in which the debtor undertakes to fulfill the terms of a plan for paying off debts over a period of 3 or 5 years. Chapter 7 requires the debtor to pass a "means test" by showing that his or her monthly income is below the median income in our state. Chapter 13 has no such test, and it provides a method to escape financial catastrophe for anyone with a regular income.

In order to qualify for a Chapter 13 proceeding, the debtor must demonstrate that he or she has a regular income and that the income will provide sufficient funds to pay off debts according to the plan approved by the court. The debtor must also show that he or she attended an approved course in financial management. The key to making the procedures in Chapter 13 work for the debtor is to accept the fact that the bankruptcy plan will be part of the debtor's life for three to five years after the court proceeding is concluded.

Thirteen tips for recovering after a bankruptcy

Many people in Bradley County regard a bankruptcy as an indelible stain on their credit history, and some even believe that bankruptcy is a stain on their personal reputation. Bankruptcy can surely have an adverse effect on a person's credit rating, but the effect does not need to be permanent. People who are knowledgeable about consumer lending and bankruptcy have several guidelines for resurrecting a damaged financial reputation.

The first step is to obtain a free credit report and ensure that it is correct. The report should also be reviewed periodically to ensure that new information is accurate, especially payments to credit card companies or other lenders. One of the best ways to improve a credit score is to ensure that all payments are made on time, including both credit cards and utility bills. Avoid purchasing high-interest products on a credit card. The high interest will be difficult to pay on time. Avoid credit repair scams. Many dubious firms will offer seemingly miraculous plans for repairing a credit rating, but usually, they are only interested in collecting fees and doing nothing to help one's credit.

Understanding the treatment of executory bankruptcy contracts

Few Bradley County businesses enter bankruptcy in a vacuum. A small retailer may have existing supply contracts with expiration dates long after the anticipated bankruptcy filing date. Both retailers and manufacturers may have unexpired real estate or equipment leases. In a Chapter 7 bankruptcy, the debtor may wish to walk away from such obligations, but in a Chapter11 business or commercial bankruptcy proceeding, the debtor may wish to continue a real estate lease or an important supply contract. The Bankruptcy Code uses the legal concept of "executory contract" to handle both problems.

The Bankruptcy Code gives the bankruptcy trustee the power to either reaffirm or reject any executory contract. The Code does not define executory contract, but it generally understood that an executory contract is an agreement under which either party or both parties have unfulfilled duties to perform. Under a supply agreement, for example, the debtor may have ordered products for delivery long after the bankruptcy petition has been filed. Until the products have been delivered, the contract is "executory." Likewise, a real estate lease with an expiration date that postdates the filing of the bankruptcy petition is executory.

Debts that cannot be discharged in a bankruptcy

When a resident of Tennessee files a bankruptcy petition, their primary object is to obtain a judicial order stating that their financial obligations have been discharged, i.e., that the debts do not need to be repaid. In most bankruptcy proceedings, the bankruptcy court will issue an order at the end of the case identifying which debts have been discharged and which remain enforceable.

Some debts are non-dischargeable as a matter of law. These debts include a tax or customs duty, a debt for money that was obtained by fraud or false pretenses. A discharge will also be denied for purchases of luxury goods for more than $500 on or within 90 days before filing of the petition. All domestic support obligations, including child support or spousal support, cannot be discharged. Fines owed to a government entity cannot be discharged. Finally, any debt incurred by fraud cannot be discharged.

Gymboree and Crazy 8 stores will close in bankruptcy

In what seems to be almost a regular weekly occurrence, another well-known retailer announced that it will be closing several stores here. According to a press release issued by the parent company, Twenty Gymboree and Crazy 8 stores in Tennessee will be affected by the company's decision to file a petition for protection under Chapter 11 of the Bankruptcy Act.

The parent company, Gymboree Group, Inc., operates 900 stores under various names. The stores sell different lines of children's clothing. The company said that it has received a commitment for debtor-in-possession financing of approximately $30 million in new loans and a "roll up" of current obligations. The roll-up will act much like a debt consolidation for an individual. If the bankruptcy court approves the loan and the restructuring of the company's debts, the arrangement is expected to provide enough capital to support the company's operations during the Chapter 11 process.

Bankruptcy filings on the rise in eastern Tennessee

People who are on their way to file a bankruptcy petition at the federal courthouse in Chattanooga often feel as if they are the only ones on this path, that no one else has hit financial rock bottom as hard as they have. The truth, however, is diametrically opposite to such feelings.

Bankruptcy filings here, including Bradley County, have increased since the Great Recession in the first decade of this century. In fact, this area of the country has led the nation for two consecutive years in the per capita rate of bankruptcy filings. The number of bankruptcy filings has increased, while the number of bankruptcy filings nationwide has decreased.

The reach and limits of the automatic stay in bankruptcy

Many people in Eastern Tennessee who are contemplating bankruptcy are aware of a legal device called the "automatic stay." The automatic stay is an order that is issued by the bankruptcy court where the petition has been filed. The stay is addressed to every creditor identified by the debtor in his initial filings, and it prohibits any attempt to collect on obligations owed by the debtor. The automatic stay can protect a debtor against attempts to foreclose a mortgage, cut off utilities, liquidate liens and pursue collection actions on credit card debt.

In this way, the automatic stay can provide significant relief from attempts to collect amounts due from the debtor. The automatic stay, however, does not provide complete protection. Some debts are not affected by the stay. Actions to collect child support or establish paternity will not be stayed. Certain tax proceedings, such as establishing a tax deficiency or demanding payment for past due taxes, are not affected by the stay. Criminal actions that involve both an obligation to pay a debt and criminal penalties will be halted as to the debt claim but not as to the allegations of criminal conduct.

How a Chapter 13 bankruptcy may save your house and car

People in Eastern Tennessee who are struggling with overwhelming debt have many questions if they are considering bankruptcy. One of the most frequently asked questions is whether they will lose their home or car in a bankruptcy proceeding. The answer to that question depends upon understanding how different bankruptcy proceeding operate.

In a bankruptcy under Chapter 7 of the United States Bankruptcy Code, the debtor's assets are sold, with the proceeds being used to pay off debts. Depending upon the debtor's financial situation, either the house or the car or both may be sold to satisfy the claims of creditors. Chapter 13, on the other hand, offers the best chance of achieving the benefits of bankruptcy and still keeping possession of the house and car.

How does bankruptcy affect a personal credit score?

Most large lenders, such as banks, credit unions and similar organizations, use a number called a "credit score" to decide whether to loan money to a particular person. A high credit score makes it easy to borrow money, whereas a low credit score makes borrowing burdensome and often impossible. People in eastern Tennessee often wonder how filing a bankruptcy petition will affect a credit score.

Filing a bankruptcy petition can have a devastating effect on a person's credit score. The exact effect will depend upon each person's individual financial situation, but the mere act of filing a Chapter 11 petition can cause a 200 point drop in a credit score of 700 (which is an excellent rating) or between 130 and 150 points in a credit score under 680. A Chapter 7 filing will diminish a person's credit score for about 10 years, whereas a Chapter 11 filing will affect a credit score for about five years.

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