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Cleveland Tennessee Bankruptcy Law Blog

Filing for bankruptcy under Chapter 7

Many consumers in Tennessee and throughout the country find themselves overwhelmed by their mounting financial obligations. Whether it is due to credit card usage, predatory payday or auto title loans, medical bills, or an unexpected job loss, some people may wonder what forms of debt relief might be available.

One potential avenue might be filing for Chapter 7 bankruptcy, but not everyone can qualify. At the outset, potential filers must first pass the means test. This is a comparison of the monthly income of the filer (and where applicable, the filer's other family members) to the median income in the state where the debtor resides. If the filer's income exceeds that median, Chapter 7 is generally unavailable.

What a trustee does in a Chapter 13 case

When a debtor chooses to file for bankruptcy, a trustee is assigned to oversee the case. This is because the debtor's property is put into a bankruptcy estate, which is a separate entity from the person who is filing for bankruptcy. This is generally true whether a person is filing for bankruptcy in Tennessee or any other state, and it is also true whether an individual is pursuing a Chapter 7 or 13 proceeding.

There are several key differences between a Chapter 7 and Chapter 13 case, and these differences influence the role that the trustee plays. In a Chapter 7 case, the person overseeing the bankruptcy estate will be in charge of liquidating property and managing payments to creditors. In a Chapter 13 proceeding, debtors will likely keep most or all of their property.

Refinancing a home loan during or after bankruptcy

Homeowners in Tennessee might be allowed to refinance their mortgages after emerging from Chapter 7 or 13 bankruptcy. This assumes that those who file for Chapter 7 bankruptcy are allowed to keep their home during the liquidation process. The type of bankruptcy that a person files for as well as the type of loan a person has could determine when it could be possible to refinance an existing mortgage.

For instance, a person who goes through Chapter 7 bankruptcy and has an FHA or VA loan might be allowed to refinance a home loan within a year of the discharge date. Those who have a conventional mortgage might have to wait up to four years before they are able to get a new home loan. Individuals who filed for Chapter 13 bankruptcy must typically make payments for at least a year before refinancing an FHA loan.

When the bills for recent holiday shopping endeavors come due

Dealing with significant levels of credit card debt can be a stressful and intimidating process under any circumstance. Unfortunately, there are a variety of scenarios in which it can be all too easy to rack up high balances on your accounts, and the severity of the situation might not hit home until the first bill arrives.

If you spent a great deal more than initially planned during the recent holiday season, you have likely already received letters reminding you of just how much the gift of giving can cost. Although you can't change the past, there are some things you can do that may help protect your financial future.

Strategies for getting out of debt

Americans who are struggling to pay down debt may feel as if they will never be financially secure enough to retire. For some Tennessee residents, their relationships with debt begin when they decide to finance their college education with student loans. Individuals may also grapple with credit card debt, auto loans and mortgages throughout the course of their adult lives. Credit card balances may be the most difficult to pay off because they have interest rates of 20% or more.

Therefore, it can be difficult for those with limited incomes to make more than the minimum payment each month. At some point, those who are struggling to save for retirement will need to make a plan to get out of debt. The first step is to create a list of all the debts that a person has and how much each creditor is owed.

Presidential candidates spar over medical debt

Polls reveal that health care is the issue that voters in Tennessee and around the country care about the most, so it is not surprising that the cost of medical treatment in the United States was discussed at length during the Jan. 14 Democratic presidential debate. During the debate, Senator Bernie Sanders claimed that about 500,000 Americans file a personal bankruptcy each year because of overwhelming doctor or hospital bills. Data from the Consumer Bankruptcy Project backs up this statement.

After scrutinizing 910 Chapter 7 and Chapter 13 bankruptcy petitions submitted between 2013 and 2016, CBP researchers discovered that medical debt or income lost as a result of an injury or illness was the primary factor about two-thirds of the time. This suggests that approximately 530,000 health care-related bankruptcies are filed in the United States each year.

Student loan debt discharged in bankruptcy case

Many people in Tennessee have student loan debt that they cannot afford to pay back. On Jan. 7, a bankruptcy judge ruled that a former law student with over $220,000 in unpaid student loan debt could have his debt discharged. The 46-year-old lawyer was a 2004 graduate of Cardozo Law School in New York, and he represented himself in court.

According to court records, the lawyer's student loan debt was consolidated and in either forbearance or deferment for a decade. The man also made 10 payments towards the debt over 26 months. The judge who ruled in the man's case said that the man was able to pass the Brunner test and therefore qualified for discharge of his student debt.

Do I meet the requirements of the bankruptcy means test?

Whether a Tennessee debtor is trying to file for Chapter 7 or Chapter 13 bankruptcy, it is important to be cognizant of the means test and how it can impact a case. Financial challenges can happen to anyone and the individual circumstances such as the person's employment situation, what assets they have and their income will be considered when determining if it is possible to file and what chapter would be most effective. The means test is a critical part of any case.

First, it is important to know that disabled veterans do not need to meet the requirements of the means test provided they have a 30 percent disability rating and more than 50 percent of the debt was accumulated while they were on active duty. People whose debt came predominately from business operations can file under Chapter 7 without the means test. With the means test, the debtor's average income for the prior six months will be compared to the median family income in the state. If it is less, there is no obstacle to filing under Chapter 7. However, the trustee can later decide that the debtor's income warrants a Chapter 13. This is something to consider as court agreement will lead to the filing being converted from Chapter 7 to Chapter 13.

Which chapter of bankruptcy is right for your future?

Before arriving at the point where you believe that it is necessary to file for bankruptcy, you probably dealt with things such as debt collectors calling you at all hours and wage garnishment. It is not easy to arrive at the point where you believe that bankruptcy is the right choice, but it could offer you the chance at a better and brighter future. Now, you have to decide which chapter is ideal for your situation. 

Bankruptcy is the process of dealing with certain types of debt, and there are two main options available to consumers, Chapter 7 and Chapter 13. The right option for you depends on the types of debt you have and other factors unique to your situation. An assessment of your case can help you see which option is best for your financial circumstances.

Can Tennessee student loans be discharged in bankruptcy?

The single word answer to this question is, "yes." However, there is much more to be said and many more complexities regarding this subject. It is not impossible to obtain a discharge of a student loan within a bankruptcy, but it is certainly no easy task. It is also not a task that is often successfully completed.

In order to be granted discharge of a student loan by a federal bankruptcy Judge, one must be able to prove that paying the loan back would create what is known as, "undue hardship." While proving this standard is difficult enough on its own, it is further complicated by the fact that Congress has never specifically defined the standard, leaving bankruptcy courts to define it at will. Those courts commonly use one of two methods in making a determination of undue hardship. They are the Brunner test, and totality of circumstances, with the first being used most often.