How a Chapter 7 bankruptcy works in Tennessee

People often feel apprehensive about considering filing for bankruptcy. However, while other alternatives can sometimes help, in some cases bankruptcy does present the best option for dealing with debt.

This general outline provides an introduction to the workings of a Chapter 7 filing.

Who can file

To file for bankruptcy in Tennessee, you must have resided in the state for at least six months before filing. You may also be required to get credit counseling before you can file. There is also an income and/or asset ceiling for filing a Chapter 7; if you exceed that, you will have to file a Chapter 13 instead.

What happens

In a Chapter 7, the trustee inventories and sells off the debtor’s nonexempt property and uses the proceeds to pay a portion of the unsecured debt, with the rest subject to discharge (with some exceptions). If you want to keep a secured asset, you will have to bring your payments current and reaffirm the debt. Otherwise, the secured creditor can take back the asset.

What can you keep

For many people, figuring out which property they will be able to keep is a major issue in deciding whether they want to file for Chapter 7. Unlike many other states, Tennessee doesn’t offer the option to choose between state and federal exemptions: You must use only the state list.

Homeowners can keep a home with potentially up to a maximum of $25,000 worth of equity (market value of the home minus the amount they owe on it). Your retirement plans generally stay safe. You can retain up to $10,000 worth of personal property and up to $1,900 worth of tools, books, health equipment and other effects.

Tennessee does not provide a separate exemption for a car, which you can include in the personal property exemption. You may keep 75 percent of disposable earnings, meaning the earnings you have left after paying for essentials such as shelter and food. There is an increase to this amount for each minor child that depends on you.