Many Tennessee residents become overwhelmed with credit card debt. When they can't keep up with the monthly payments, they may choose bankruptcy. Many people are aware of what bankruptcy does, but don't really understand how it works. Read on to find out what the process entails.
The first step is to obtain approval from the bankruptcy court. There are some restrictions in regards to debt limits depending on the type of bankruptcy you choose. Chapter 7 and 13 bankruptcies are available for consumers. If your bankruptcy is approved, you cannot be sued or threatened by creditors. The court issues an automatic stay, which is a protective order that prevents creditors from harassing you about debt repayment. The automatic stay remains in place until the court lifts it.
If you choose Chapter 7, your assets will be liquidated so there is money to pay back creditors. Those who choose Chapter 13 may be able to keep a majority of their assets, but in return must create a repayment plan for approval. Chapter 7 can help eliminate some types of debt. Credit card debt and medical expenses may be wiped out, but those with student loan debt, tax debt, child support and alimony obligations won't be able to get those types of debts discharged. Creditors can challenge a discharge and may be able to force a consumer to pay it.
Most consumers prefer Chapter 7 because it discharges debts without having to repay them. But if you have smaller debt and more income, Chapter 13 may be the better option. A bankruptcy attorney can review your financial situation, determine the better option and walk you through the process.
Source: FindLaw, "Bankruptcy: Frequently Asked Questions," accessed April 25, 2015