In Tennessee, bankruptcy provides a legal process in which individuals and organizations can take measures to obtain relief from debt that has become unmanageable for them. The bankruptcy process is primarily governed by the federal Bankruptcy Code as applied in federal bankruptcy courts. However, in Tennessee, certain Tennessee state laws also apply to the process.
One of the main advantages of filing a petition for bankruptcy in federal bankruptcy court is the automatic stay. As soon as a person in debt files a petition for bankruptcy, most actions that creditors, collection agencies and government agencies may take to try to collect money from the debtor are stopped, or “stayed” in legal terminology.
So, for example, if a creditor is harassing a debtor with phone calls and other communications, these should all cease when the debtor files their bankruptcy petition. In addition, after completing the bankruptcy process, a debtor should be free of debt that they have simply not been able to pay.
Tennessee laws provide Tennessee’s own bankruptcy exemptions, eligibility requirements and procedures that are available only in Tennessee. Bankruptcy exemptions define which property a debtor has that they can avoid liquidating in Chapter 7 or debts they can exclude from a repayment calculation in a Chapter 13 bankruptcy.
In some states, a debtor can choose between federal and state exemptions, but Tennessee law requires that a debtor use Tennessee exemption laws. This is more of a disadvantage, as Tennessee exemptions may not be as generous as federal exemptions.
A person must have been a resident of Tennessee for at least 91 days to be eligible to file for bankruptcy in Tennessee.
What Are the Disadvantages of Filing for Bankruptcy in Tennessee?
While filing for personal bankruptcy can reduce or eliminate an individual’s debt, there are also some possible negative consequences to it. Some of the negative effects of declaring bankruptcy are as follows:
- Debt Not Eliminated: Not all of a person’s debts may be discharged.
- Assets Sold Off: Certain assets may be sold and the proceeds used to pay creditors.
- Effect on Credit Rating: A bankruptcy stays on a person’s credit report for 7 to 10 years and may affect the debtor’s ability to access credit in the future.
- Effect on Credit Score: A debtor’s credit score is likely to be reduced by 100 to 200 points.
It is possible for a debtor’s Tennessee bankruptcy lawyer to negotiate solutions that reduce or eliminate some of the negative consequences. For example, an individual’s lawyer might negotiate with a credit card issuer and get them to agree to allow the individual to keep their credit card. However, a debtor who wants to turn to bankruptcy for debt relief should be aware of the possible negative consequences that it could have on their future financial affairs.
There are several types of bankruptcy. Each one is designed to address different debtor situations. For most people, Chapters 7 and 13 of the federal Bankruptcy Codes would be the best choices, but a person could also pursue bankruptcy under Chapters 11 and 12. A Tennessee lawyer consultation would help a person understand which type of bankruptcy would work best for their circumstance.
Filing for bankruptcy in Tennessee can be complicated because the state has its own laws dealing with exemptions, eligibility requirements, and procedures that affect bankruptcy proceedings in that state. There are federal bankruptcy laws also and the interaction of the 2 sets of laws can make managing a bankruptcy case in Tennessee challenging.
There are 3 bankruptcy court districts in Tennessee, the Eastern, Middle and Western. Each has its own rules and court procedures. It pays to be familiar with these local rules in order to avoid mistakes. It would be best to consult a Tennessee lawyer before filing for bankruptcy, as it is a special domain of the law. An individual would benefit from having the professional advice of a lawyer to guide them through the decisions that must be made in a bankruptcy case.
As noted above, some important exemptions in Tennessee are not as generous as they are in other states. For example, the homestead exemption, which protects some of a debtor’s equity in their primary residence, is an important one for most debtors.
In Tennessee, individual homeowners can exempt as much as $5,000 of the equity in their home. This means that if they must sell their home, they can keep up to $5,000 of their equity in the property. Married couples filing jointly can protect as much as $7,500.
Individuals who are over 62 can protect up to $12,500 of equity in their homes, $25,000 for married couples, provided both spouses are 63 or older. These amounts are actually low compared to the value of the exemptions allowed in other states. So, this makes the issue of home equity a concern for many Tennessee debtors.
A debtor may protect household goods from liquidation, e.g., furniture and clothing, with a value of as much as $10,000. Tennessee law also exempts a debtor’s tools of their trade, up to $1,900. Public benefits that a debtor may receive, such as Social Security, workers’ compensation, and unemployment benefits are also exempted. Federal law protects retirement accounts such as 401(k) plans and pensions.
So, a Tennessee exemption may require a debtor to sell their residence, but it would allow them to keep the specified amount of money from the sale as their equity. Again, the amount would depend on the debtor’s age and marital status as explained above.
Vehicle exemptions are another vital issue, as many debtors rely on their car to get to work and run daily errands. Tennessee allows an exemption of up to $10,000 of equity in a vehicle. Those with car loans may need to negotiate reaffirmation agreements with their car loan creditor if they want to keep their car.
What Debts Cannot Be Discharged in a Tennessee Bankruptcy?
A bankruptcy discharge means that a person or company is no longer required by law to repay a certain debt or debts. Under bankruptcy discharge laws, the debt is not repaid, but is, rather, effectively cancelled. The creditor can no longer seek payment of the debt by the debtor.
Most people opt for Chapter 7 bankruptcy. Chapter 7 allows an individual to completely wipe out debt that is unsecured, e.g., medical bills and credit card balances. Debt that is unsecured means that the creditor does not have the legal right to access some asset of the debtor to repay the debt, if the debtor does not pay it. In a Chapter 7 bankruptcy, the bankruptcy court takes possession of all of the debtor’s assets.
Then a trustee, a professional appointed by the bankruptcy court, reviews a person’s assets and decides whether any of them can be sold, so the proceeds of the sale can be used to pay off creditors.
Some assets would not be subject to sale because of exemptions in Tennessee bankruptcy law, as noted above. Tennessee bankruptcy exemptions should protect most of an individual’s ordinary assets if the exemptions are used correctly. For this reason, Tennessee bankruptcy exemptions are important, and a person consulting a Tennessee bankruptcy attorney would want to ask how the exemptions could help in their situation.
Chapter 13 bankruptcy also deals with debt that is not secured. However, Chapter 13 offers the option of repaying the debt over a period of 3 to 5 years. Chapter 13 is often used to give a debtor the additional time to cure delinquencies in their mortgage debt, car loans, and other debts that are secured.
It might not be possible for a debtor to save these debts under Chapter 7. Chapter 13 also offers opportunities to manage certain tax debts as well as child support and spousal support obligations that are more difficult to resolve in Chapter 7.
In Chapter 13, the debtor proposes a plan to pay off all their debts. It should be a plan that fits their budget. A trustee and the court review the plan, and when it meets their requirements, they approve it. The debtor then moves forward, paying off debt according to their plan.
What Are Common Bankruptcy Legal Issues in Tennessee?
One of the first issues that can arise in a bankruptcy is that of eligibility for a certain type of bankruptcy, e.g., Chapter 7 or Chapter 13. An individual’s income and the amount of their debt play a role in this, and they might not be able to pursue the type of bankruptcy that they want.
Another issue that can be of critical importance to a debtor is whether an exemption applies to some of their assets. An exemption allows a debtor to keep a certain asset after the bankruptcy is finished. If property is not exempt, it can be sold and the proceeds used to pay off a creditor. So which property is exempt and which is not can be an issue of great importance to a debtor.
Creditors may dispute the amount of a debt or whether it is secured by a piece of property, real or personal, of the debtor. Resolving these claims may become time-consuming, and the result may not favor the debtor.
Should I Contact a Tennessee Bankruptcy Lawyer?
If you are burdened by debt that has become unmanageable, you want to speak to a Tennessee bankruptcy lawyer. Your lawyer can review your unique financial situation and determine which type of bankruptcy offers the best solutions for you, whether it is Chapter 7 or Chapter 13.
When your lawyer files your bankruptcy petition, your creditors must stop all collections activities. This means they cannot make harassing phone calls or make other efforts to collect their debts. All communication goes through your Tennessee bankruptcy lawyer. Your lawyer works with creditors and the court to get the resolution of your debt issues that will give you the peace of mind you need and a new start for your financial situation.
