Bankruptcy exists so that people or businesses experiencing financial hardship can make a change for the better. Bankruptcy can stop collection activity, eliminate certain debts and lead to improved budgetary control for the filer. Despite the numerous benefits of filing for bankruptcy, people often delay the process for as long as they possibly can. Concerns about how bankruptcy affects credit may deter some people. Others specifically reference how bankruptcy puts their personal property at risk as the main reason they delay filing or choose not to file despite major financial struggles.
While Chapter 7 bankruptcy can put people’s resources at risk, it is possible to successfully file for bankruptcy without endangering personal resources.
With property exemptions
Parties who qualify for Chapter 7 bankruptcy proceedings can stop collection activity quickly and discharge their eligible unsecured debts in a matter of months in some cases. However, the trade-off for that efficient process is that the courts may require the liquidation of certain kinds of non-exempt personal property. Although the liquidation of a filer’s assets is a very rare occurrence, it is a risk.
Those filing for Chapter 7 bankruptcy in Tennessee must use the state exemptions, as Tennessee does not allow people to select the federal exemptions instead. People can protect retirement savings, equity in their homes and other personal assets with the proper use of bankruptcy exemptions in a Chapter 7 filing.
With Chapter 13 bankruptcy
Although a Chapter 7 bankruptcy is the fastest path to a discharge, Chapter 13 bankruptcy is sometimes the better option for individuals. A Chapter 13 bankruptcy filing does not involve asset liquidation because the filer must complete a multi-year repayment plan before they are eligible for a discharge of their debts.
In cases where people pass the means test that determines eligibility for a Chapter 7 filing, they may still decide to pursue a Chapter 13 filing instead specifically because their property might be at risk of liquidation. If people have assets that go beyond what they can protect with the Tennessee state exemptions, then a Chapter 13 filing might be the smarter choice in that situation.
Looking carefully at one’s debts and reviewing personal holdings carefully can help someone considering a Chapter 7 bankruptcy to more effectively protect their resources from liquidation.