Legal Question in Bankruptcy in Tennessee

Unsure of how to proceed

I have been living on credit cards since last July although I'm about to land I job and make a salary of 40-50k. I own a home with a 2nd and 3rd mortgage on it. I just recently got a credit report which says I have perfect credit. Current debt is 58k on house, about 27k on 2nd & 3rd mortgage, and about 23k in credit card bills. I guess my question is, can I file bankruptcy if my credit report shows no late payments. I was wanting to file chapter 7, but I'm not sure if I can do this if all my bills are paid up and it looks like there is no financil problems. Do I need to stop making payments and fall behind before I can file? Just curious on how to proceed. Thanks in advance for any advice you can give me!


Asked on 2/12/02, 10:41 am

1 Answer from Attorneys
Andrew Nichols Law Office of Andrew B. Nichols

Re: Unsure of how to proceed

Short answer -- If you have any significant equity in your house you will only be able to file under Chapter 13.

You ask several significant questions. Are you single or married? You state that you owe $85,000 against your home. If your home is worth more than $90,000 and you are single then you will necessarily be limited to filing under Chapter 13. Basically under Tennessee law only $5,000 of equity in a home can be "exempted" from creditors in the case of a single person filing. (The limit is raised to $7,500 for a married couple). In other words if your house is worth more than you owe on it (over $5,000) then you would have to surrender that value to compensate your creditors. So attempting to obtain complete relief from all your debts under Chapter 7 is not a good option. Chapter 13 is different since the equity in your home would not be an issue. In a Chapter 13 you would pay a portion of your debts over 2-5 years.

The fact that you are currently paying the minimum balances on your credit cards does not necessarily mean you have good credit. One significant factor in analyzing credit is a person's debt to income ratio. Yours is pretty high. More importantly, attempting to repay all that credit card debt with interest based on your stated annual salary would be a momentous accomplishment. My experience tells me you would be a rare case indeed if you were to pay off your debt in 12 to 15 years. From my perspective I would encourage you to file. READ MY FIRM PHILOSOPHY! You are certainly eligible to file eventhough you are not delinquent on any of your bills. That is not the criteria or basis for filing in a Ch. 7 and certainly not in a Ch. 13.

If by chance you owe more on your house then it's worth then I would begin by filing your case under Ch. 7. There could potentially be an objection to this by creditors (or the Bankruptcy Trustee) but I would as a strategy at least attempt it and convert the case into a Ch. 13 if some party forced the issue. Ph. (800) 303-0237

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Answered on 2/12/02, 8:18 pm


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