Frequently Asked Questions: Bankruptcy in Knoxville

Knoxville Bankruptcy Lawyer

What are the most common reasons for a Knoxville resident to file bankruptcy?

There are several common reasons for one to file for bankruptcy: excessive amounts of credit card debt, pending foreclosure, being sued by a creditor, threatened vehicle repossession, an unpredictable large expense of some sort, unemployment, divorce, or inability to pay off high medical bill balances (which is a widespread problem in our country, as over 50% of all bankruptcies in the U.S. are caused by medical bills).

What are some benefits of filing bankruptcy?

Once a person files for bankruptcy, all collections and/or legal action proceedings therein are automatically stopped. By filing, you can stop foreclosure, repossession of your property, wage garnishment, as well as any harassment by creditors and collection agencies you've been enduring. Perhaps the greatest benefit of all is the complete removal of all eligible debt; filing bankruptcy can offer the fresh start you need.

What does Chapter 7 Bankruptcy mean?

Chapter 7 bankruptcy is often referred to as a "liquidation" type of bankruptcy wherein the debtor surrenders his/her  property (but only the property that the debtor cannot claim as "exempt" and thereby protect from being sold by a bankruptcy trustee) in exchange for being able to "discharge" (or wipe out) his/her unsecured debt(s). Often times, debtors are able to keep all of their personal property, car and/or home while filing a Chapter 7. Determining what property can be protected under the applicable exemptions can be somewhat complicated. However, our attorneys will fully explain what  exemptions are available to you and make sure that you completely understand what property can be protected.

You are only allowed to file a Chapter 7 bankruptcy once every 8 years.

From the time a Chapter 7 is filed with the Court, the debtor usually receives his/her discharge of their debts in approximately 3-3 ½ months.

What is a Chapter 13 Bankruptcy?

Chapter 13 bankruptcy is also referred to as a "repayment" type of bankruptcy. In a Chapter 13, debtors are allowed 3-5 years to repay their debts. Also, a debtor's unsecured debts (credit cards, medical bills, etc.) can sometimes be paid back at less than 100% as payment in full (the repayment to unsecured creditors can range from 5-100%).

Debtors who are behind on their mortgage payments (and do not have the money to get caught up now) often times file a Chapter 13 so that their mortgage "arrearages" (overdue mortgage payments) can be repaid over a 3-5 year period (thereby giving them "room to breathe" and making the payments manageable).

The attorneys who file your chapter 13 case will file a "Chapter 13 plan" with the Court. The plan outlines how much of your debts will be repaid and how often you will be making your "plan payments". Plan payments are normally made on a weekly, bi-weekly or monthly basis. Debtors make their plan payments to the Chapter 13 Trustee. The Trustee then pays all the creditors each month.

To qualify for a Chapter 13, the debtor(s) needs to show the Court that they are capable of making their scheduled plan payments.

Generally speaking, upon the successful completion of your Chapter 13 plan, your unsecured debts (that you listed in your case) are discharged. Secured creditors (such as car loans or furniture loans) are usually paid off in the plan. Usually, home loans are not completely paid off through the plan (but mortgage arrearages usually are). After the plan is successfully completed, the debtors return to making their normal monthly mortgage payment(s).

Who has to know that I filed for bankruptcy? Will this be public knowledge?

Chapter 7 and 13 bankruptcy filings technically qualify as public records; however, the only person or institution truly aware of your status will be the Credit Bureaus. These bureaus will include verification of your bankruptcy on your actual credit record. This information  may be reflected on your credit record for up to 10 years. However, its important to realize that by the same means when you do nothing and simply are late in payments or default in your payments, this information is also reflected in your credit record.

Will filing bankruptcy make creditors stop harassing me?

Absolutely. Once a bankruptcy case is filed, it becomes illegal for creditors to instigate or persist with telephone calls to a debtor and they no longer retain the legal rights to proceed with any lawsuits against you. All actions of creditors against a debtor must immediately stop after a bankruptcy has been filed. 

If I've already filed bankruptcy once before, am I eligible to file again?

An individual has the right to file Chapter 7 bankruptcy again after a period of 8 years. For those who have previously filed Chapter 13 bankruptcy, it can be filed again following a passage of two years since receiving a Chapter 13 discharge (or when your payments to the trustee have been completed).

What is "debtor's quicksand"?

Many times debtors facing excessive debt (which they will never be able to pay off - based on their current income & expenses) continue making monthly payments to creditors who are now charging them enormous interest rates! The result is hard-working debtors "throwing good money after bad" - with no hope of ever paying off the debt. Filing bankruptcy enables a debtor to get out of the quicksand, stop throwing good money after bad and be their first step towards rebuilding their credit.