Tennessee Bankruptcy Exemptions and Law
Coronavirus Information: Courts all over America, including Tennessee's bankruptcy courts, have significantly scaled back operations during the COVID-19 pandemic. Masking, social distancing, and symptom screening requirements apply to everyone who sets foot inside a Tennessee bankruptcy courthouse. Furthermore, judges are conducting most hearings via telephone or videoconference. Live hearings are sometimes available, especially if witness credibility is a major issue. Likewise, trustees conduct most meetings remotely.
Pro se parties may only file documents by mail or, in some limited cases, by fax or email. The court has changed the signature requirements on these documents to reflect the clerk's unavailability. These rules often change with little or no prior notice. So, click here to obtain the latest coronavirus closure information.
Recently, in a much-anticipated move, the Consumer Financial Protection Bureau eliminated some key consumer debt protections in federal law. The CFPB's move was just the latest in a long series of rollbacks that have given debt collections more power than they've ever had before.
This power includes the ability to seize your property and sell it to pay your debts. In many cases, creditors do not need court orders to undertake such actions. Additionally, because they have so much power, many banks are unwilling to discuss things like payment plans and forbearance requests. Instead, they assume a take-it-or-leave-it negotiating posture.
As outlined below, bankruptcy shields your property from adverse creditor actions. The Bankruptcy Code gives honest yet unfortunate debtors the fresh start they need so badly.
The rules we follow come from a variety of sources. For example, most Tennesseans pay taxes to both the federal and state government. Similarly, the federal Bankruptcy Code and the Tennessee Code both have a role in bankruptcy proceedings.
The aforementioned legal rollbacks have left consumers largely defenseless against large, aggressive debt collectors. These moneylenders are usually quite relentless. Fortunately, these rollbacks have not ended all such protections. Bankruptcy's automatic stay is usually the one remaining source of relief in this area. Section 362 of the Bankruptcy Code immediately stops:
- Utility shutoff
- Creditor lawsuits
- Wage garnishment
This protection is not absolute. If you have filed bankruptcy within the past six months, even if you filed under another name or as an LLC or other entity, the automatic stay usually only has limited applicability.
Furthermore, Section 362's protections only apply if creditors receive actual notice of the filing. It's interesting that creditors can easily review a box score from a basketball game in China, yet they often claim not to know about their own customer's bankruptcy filing. So, a Tennessee bankruptcy lawyer must take additional steps in this area.
Bankruptcy does more than offer immediate relief to distressed debtors. Bankruptcy offers long-term relief as well, in the form of debt discharge. Bankruptcy eliminates most unsecured debts, such as:
- Credit cards
- Revolving debt accounts
- Medical bills
- Payday loans
- Signature loans
Once again, some restrictions apply. According to the Bankruptcy Code, some unsecured debts are priority unsecured debts. Examples include past-due FSOs (Family Support Obligations, such as child or spousal support), criminal fines, past-due income taxes, and student loans. These obligations are only dischargeable in some situations. For example, student loans are dischargeable if the debtor has an “undue hardship," a rather vague phrase that means different things in different courts.
Furthermore, bankruptcy discharges debt, but it does not affect the collateral consequences of debt. So, if the IRS filed a lien on Marlon's property and he files bankruptcy, the lien remains, even if the judge discharges the taxes. A Tennessee bankruptcy lawyer must deal with the lien separately.
Kinds of Consumer Bankruptcy
High medical bills, temporary job loss, divorce or separation, and other unexpected financial crises trigger most bankruptcy filings. These financial storms affect different families in different ways. So, there are different kinds of bankruptcy.
Chapter 7 Bankruptcy
Frequently, when money is tight, people use credit cards to pay bills. The average credit card interest rate is over 20%. If you use plastic to stay afloat, you will probably sink pretty quickly.
If high credit card and other unsecured debt is the problem, Chapter 7 bankruptcy could eliminate this debt in as little as six months. Families get the fresh start they need and deserve almost immediately.
Typically, immediately after debtors file their voluntary petitions, the trustee requests a number of financial documents, such as bank statements and tax returns. The trustee is looking for signs of bankruptcy fraud, such as sudden, drastic income changes or income/lifestyle discrepancies.
Later, at an informal meeting, the trustee talks about any red flags and also verifies the debtor's identity. If everything goes well at this meeting, the judge usually issues a discharge order without asking questions.
Chapter 13 Bankruptcy
Other people react differently when their incomes shrink. They shift money away from secured debts, like house payments, and apply it to immediate needs, like utility bills. Technically, lenders can almost immediately foreclose on loans, even if the homeowner only misses one payment.
Chapter 13 bankruptcy is designed for folks in this situation. The trustee's role is the biggest difference between a Chapter 7 and a Chapter 13. Chapter 13 trustees look for fraud and verify debtor identities. Chapter 13 trustees also set debtors up on monthly repayment plans. These plans usually last three or five years, largely depending on the debtor's income. The trustee takes your disposable income each month and spreads it among allowed claims.
“Allowed claims" usually include secured debt arrears, like past-due mortgage payments, some priority unsecured debts, administrative costs, and a few other things.
The automatic stay usually remains in force during the entire protected repayment period. So, as long as the trustee approves the repayment plan, creditors cannot pressure debtors into paying more money or paying it faster. Instead, they must accept what the trustee pays them, when the trustee pays it.
A bankruptcy lawyer makes a big difference in both kinds of consumer bankruptcy. In a Chapter 7, an attorney ensures that the process runs as smoothly as it is supposed to run. In a Chapter 13, an attorney can unlock some advanced options, like lien stripping and lien cramming, which could save your family tens of thousands of dollars.
Many of the same eligibility requirements apply to all kinds of consumer bankruptcy filers. Everyone must complete two financial management classes, a pre-filing credit counseling course, and a post-filing budgeting course. There are some chapter-specific requirements as well. Some are written, and some are unwritten.
Chapter 7 Eligibility Rules
As of 2005, Chapter 7 debtors must deal with the means test. Fueled largely by banker propaganda, some lawmakers believed that debtors used credit cards to buy private islands and then filed Chapter 7. As discussed above, that's usually not the case. But the requirement remains.
You can file Chapter 7 if your household's income is below average. As of November 1, 2020, that amount is $85,923 for a family of four in Tennessee. The amount, which changes about every six months, varies according to household size and geographic area. For example, the cost of living is higher in Memphis or Nashville than in more rural areas of the state.
Chapter 7's unwritten eligibility requirement also involves income. This time, it's the income/expense balance in Schedules I and J. Unless the debtor is marginally in the red every month, the trustee might ask why the debtor has not considered other options, such as Chapter 13 or non-bankruptcy debt negotiation. No one likes unwanted questions of this nature.
Qualifying for Chapter 13
If you file Chapter 13, the opposite informal requirement applies. These debtors must make monthly debt consolidation payments, as discussed above. Therefore, they must have sufficient disposable income to make these payments.
If the monthly payment is or becomes unsustainable, a bankruptcy lawyer can usually offer options, such as conversion to Chapter 7 or a hardship discharge.
The written Chapter 13 qualification is a debt ceiling. These petitioners cannot have more than $1.3 million in secured debt and $400,000 in unsecured debt. These figures, which usually change every year, are current as of January 1, 2021. If you live in a large house, even if you are current on the payments, and/or you are maxed out on several credit cards, qualifying for Chapter 13 might be an issue. Once again, a bankruptcy lawyer can offer effective alternatives.
Things get a little technical here. So, strap yourselves in. As mentioned, the automatic stay prevents creditors from seizing property. However, the trustee is not a creditor, and they can liquidate your property to pay your debts.
But not so fast. Tennessee bankruptcy trustees are immune from the automatic stay, which is in federal law. But they must respect property exemptions, which are in state law. Some notable property exemptions (property protections) include:
- Home equity: Tennessee's homestead exemption usually shields $25,000 of home equity if at least one minor dependent lives in the house. Otherwise, the exemption fluctuates between $5,000 and $20,000, depending on the marital status of the filer, the filer's age, and a few other factors. There's a big difference between fair market value and equity amount. If Martin bought a $500,000 home last year, he probably has less than $5,000 of equity. Since his equity is under the limit, the trustee cannot seize his home.
- Retirement accounts: Many older filers have lots of money in a 401(k), IRA, or other nest egg account. Tennessee law exempts all the money in these accounts, regardless of how large they are. Always speak to a Tennessee bankruptcy lawyer before you add or withdraw a significant amount of funds from such an account. This same exemption applies to pension plans, like teacher retirement plans. On a related note, tax-deferred savings accounts, like 529 college savings plans, are usually 100% exempt as well.
- Personal property: In Tennessee, this category only applies to a few items, such as pictures, books, clothes, health aids, and some personal injury, workers' compensation, and other awards. If you have additional property to protect, like a motor vehicle, furniture, and electronics, you may use the wildcard exception, which is discussed below.
- Government and other benefits: Many people depend heavily on VA disability, Social Security, and other government benefits. In the Volunteer State, such benefits are exempt assets, even if they arrive monthly, like income. A bankruptcy lawyer can show families how to maximize this exemption and avoid unwanted questions. Privately-paid benefits, like FSOs, are normally exempt as well.
- Wildcard exemption: Section 26-2-103 of the Tennessee Code protects up to $10,000 worth of otherwise nonexempt property, such as the aforementioned motor vehicle. The as-is cash value rule applies here. Harry might have paid $5,000 for a state-of-the-art TV. But this item might fetch $500, at most, in a garage sale. $500 is the TV's as-is cash value.
Tennessee files may also use the federal nonbankruptcy exemptions to protect things like their current wages.
Furthermore, there are some informal exceptions to protect additional property. The best interests of creditors rule is a good example. Assume Robert owns a bass boat, which he cannot protect under Tennessee's written exemptions. The trustee makes plans to seize and sell it. As part of the planning process, the trustee estimates a buyer would pay $1,000 for the boat. The boat needs $500 in repairs. Furthermore, the trustee believes sales costs, mostly storage costs, would be about $500. The trustee must pay these expenses.
Do the math. If the trustee liquidates the boat, Robert's creditors would get little or nothing. So, a liquidation would not be in their best interests. Therefore, the trustee cannot touch Robert's boat.
How do I start bankruptcy in Tennessee?
Money is usually tight in these situations. To save money, many people file a DIY (Do-It-Yourself) bankruptcy. You can download the forms here. But the forms are still complex. Filing a DIY bankruptcy is like filing an LLC's tax returns without consulting the instructions and without any outside help.
A BPP (Bankruptcy Petition Preparer) bankruptcy is like filing taxes through an entity like Jackson Hewitt. The tax company can fill out forms and give you generic advice, but that's it. Likewise, a BPP can only fill out forms and offer generic advice. That's not very much help.
Hiring a bankruptcy lawyer is definitely an investment. This investment always pays significant dividends. As mentioned, only an attorney can unlock advanced features. Furthermore, only a Tennessee bankruptcy lawyer can give you solid legal advice which is specific to your situation. Finally, only an attorney can represent you at a confirmation, motion for turnover, or other hearing.
Where do I file bankruptcy in Tennessee?
There are three bankruptcy courts in the Volunteer State. If you live west of Highway 641, which runs from around Murray, Kentucky to Corinth, Mississippi, you are most likely in the Western District. If you live anywhere near Nashville, you are probably in the Middle District. If you live elsewhere in Tennessee, you are most likely in the Eastern District.
How much does bankruptcy cost in Tennessee?
Bankruptcy filing fees are usually around $350. The exact amount varies, depending mostly on the location and type of bankruptcy. Payment plans and fee waivers are occasionally available. Professional fees vary as well. Sliding scales and payment plans, including post-petition payment plans, are usually available.
What happens when a person files for bankruptcy?
When you file for bankruptcy, you get a fresh start. The automatic stay protects you from creditors and the property exemptions shield your assets. Furthermore, Chapter 7 quickly eliminates most credit cards and other unsecured debt. Chapter 13 debtors get up to five years to catch up on things like past-due mortgage payments.
What happens when you file for Chapter 7 bankruptcy?
About six weeks after you file a petition and schedules, you meet with the trustee. Depending on the type of bankruptcy you file, the trustee either briefly reviews the case or sets you up on a long-term repayment plan. At the end of the bankruptcy, the judge discharges most remaining unsecured debts.
What property is exempt from creditors in Tennessee?
Your house, retirement account, personal property, motor vehicle, and most other assets are exempt in Tennessee. A lawyer can also use some legal loopholes to protect additional property, such as a vacation cabin or a boat. We list the Tennessee exemptions above.
Work with a Diligent Bankruptcy Lawyer
To protect your property and get a fresh financial start, call an experienced Tennessee bankruptcy attorney today.
Note: State laws are always subject to change through the passage of new legislation, rulings in the higher courts (including federal decisions), ballot initiatives, and other means. While we strive to provide the most current information available, please consult an attorney or conduct your own legal research to verify the state law(s) you are researching.