Filing for bankruptcy is nothing to feel ashamed of as an individual or business owner. In fact, it is a very common occurrence in Tennessee. According to the Memphis Business Journal, Tennessee has more than double the national bankruptcy rate, at 5.17 filings per 1,000 residents.
Bankruptcy is common in Tennessee for several reasons, primarily because state laws are very friendly toward lenders and creditors.
Reasons for Tennessee's high filing rate
Data analyses of the bankruptcy rate in Tennessee find one of the most common reasons is the risk of home foreclosure. Most people would rather declare Chapter 13 bankruptcy to repay their debts without losing their homes. The other reason for the high bankruptcy rate is lenders and creditors can get away with charging high interest rates, which puts borrowers at financial risk.
A creditor can charge a maximum of 10% interest on loans over $1,000 in Tennessee. Legal limits do not apply, however, if the borrower agrees to more (e.g. 18% interest on a credit card). Creditor-friendly laws can hurt borrowers and lead to immense debt. This contributes to the high number of people declaring bankruptcy in Tennessee.
Common types of bankruptcy in Tennessee
The most common types of bankruptcies are Chapter 7 and Chapter 13. Chapter 7 liquidates the filing person's assets and uses the profits to pay off outstanding debts. The individual will have a clean slate. If liquidated assets are not enough to cover debts, the remaining debts become discharged in the bankruptcy.
In a Chapter 13 bankruptcy, the filing person arranges a court-approved debt repayment plan. Typical plans last three years, but cannot last more than five (unless with special exceptions). These two bankruptcy filing types are the most common ways to take care of serious debt for people in Tennessee. Anyone struggling to repay credit card debts, car loans or other debts can start fresh by filing for bankruptcy.