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.
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.
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.
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.