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What are the differences between Chapter 7 and Chapter 13?

Residents of eastern Tennessee who are considering filing a bankruptcy petition have two basic options: Chapter 7 or Chapter 13. The differences between the two chapters are significant and should be understood by anyone who is close to making a final decision about whether and how to file for personal bankruptcy.

The essential difference between the two chapters is the difference in outcomes. Filers under Chapter 7 are usually looking to have all unpaid debts discharged, that is, unsecured debts such as credit card balances, bank loans and medical bills will be declared beyond the reach of creditors. Under Chapter 13, the debtor must submit a plan to the court showing how existing assets will be liquidated to pay current debts and how the unpaid portion of those claims will be paid off over time. Chapter 13 does not usually result in the discharge of a significant number of debts.

A second difference between Chapter 7 and Chapter 13 is that under Chapter 7, debtors are usually required to surrender their automobiles and residences if the loans used to acquire those assets are not current. Under Chapter 13, the debtor may be allowed to keep the house or the car if the loan delinquencies are cured during the bankruptcy proceeding. Some debts cannot be discharged under either chapter, such as back taxes, unpaid child support and student loans.

An important difference between Chapter 7 and Chapter 13 is the financial eligibility requirement. If the debtor has monthly income that exceed the limit for Tennessee, he or she will be ineligible to file under Chapter 7 and will be required to file under Chapter 13.

Anyone who is wondering about whether to file bankruptcy, or which chapter should be used may wish to consult a knowledgeable bankruptcy attorney. An experienced bankruptcy lawyer can explain the differences between Chapters 7 and 13 and provide important guidance about which chapter will provide the greatest benefit.

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