What Is a Non-Dischargeable Debt in Tennessee?

Edited by Hannah Locklear

Obtaining a Tennessee bankruptcy discharge is the best thing that can happen to you when you file for bankruptcy in the state. However, not all debts are dischargeable in Tennessee. For this reason, you'll need to know which debts are dischargeable and which aren't to help you plan your finances better after filing for bankruptcy.

Here are essential facts you need to know about filing bankruptcy in Tennessee and everything else in between.

A non-dischargeable debt is the kind of debt that can't be eliminated by filing for bankruptcy. According to the bankruptcy code, you'll be required to continue paying for the non-dischargeable debt even after successfully filing for bankruptcy.

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Non-dischargeable debts in Tennessee

The state of Tennessee recognizes both Chapter 7 and Chapter 13 of the Federal Bankruptcy Code to govern the bankruptcy process. Both individuals and businesses usually file chapter 7 bankruptcy, although it's commonly used by borrowers with unsecured debts, such as credit card debts. On the contrary, Chapter 13 is only filed by individuals, including sole proprietors.

Whether you file for Chapter 7 or 13, you'll still be required to pay for the non-dischargeable debts. In Tennessee, non-dischargeable debts include:

• Child support, alimony, and any other family support-related debts.
• Personal injury debts or debts resulting from accidents caused by intoxicated driving.
• Student loans (unless proven that paying will result in undue hardship).
• Any debts resulting from a violation of the law, including tickets, files, and penalties.
• Income tax debts and any other tax-related debts.
• Any debts not listed on the bankruptcy application.

If you file for Chapter 7, a creditor can challenge the request to discharge a debt based on the following reasons:

• The debt was incurred based on fraud.
• The debt is a loan or cash advance of at least $1,150 and was used on luxury goods or services 60 days before filing for bankruptcy.
• The debt is derived from embezzlement of funds or breach of trust.
• The debt is a payment for willful or malicious injury caused to another person or property.
• The debt is under a divorce decree.

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The Tennessee mean test explained

In Tennessee, you must prove to the court that you indeed qualify to file for bankruptcy by completing the mean test.

This is a two-part test used to determine whether you fall below the median income of the state. The first part of the test involves calculating your family's gross income from all sources in the past six months. Then, the median will be calculated depending on the size of your family. If it falls below the minimum threshold, you'll have passed the test and be declared eligible for bankruptcy.

But if your median is higher than the threshold, you won't be eligible for Chapter 7, and you'll need to take the second part of the test.

The second part of the test lets you deduct some expenses from your monthly income. If the remaining balance isn't enough to pay for your debts using the Chapter 13 repayment plan, then you'll be eligible to apply for bankruptcy.

What will happen to my property in Tennessee after filing for bankruptcy?

If you file for Chapter 7, your property will be sold by a trustee, and the proceeds used to pay for the debts. In the case of Chapter 13, your debts will be consolidated into one payment plan. You'll then be required to make monthly payments.

This plan may take between 3 to 5 years to complete.

Many people don't think filing for bankruptcy is a good option because they believe that they'll lose all they have. That isn't necessarily true because some properties are exempt from bankruptcy.

A trustee can't sell any property exempted from bankruptcy. Similarly, the value of your exempt estate will be deducted from the total value of your bankruptcy estate. By doing so, your debt will be smaller.

Exempt properties include:

• Your home, including the land, house, and lease.
• Personal clothing.
• Health savings accounts and health aids.
• Retirement benefits and pensions are exempted from tax.
• Your car.
• Other personal properties.

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How to recover from bankruptcy

Bankruptcy may push you a few steps back financially, and it may seem like there's no way to recover. But, believe it or not, bankruptcy offers you an opportunity to make a fresh start, especially with rebuilding your credit score.

All you have to do is create a plan to undo the damages of the bankruptcy process. For example, if you filed a Chapter 7 bankruptcy, all your debts will be cleared, but you'll have to deal with a bankruptcy record in your credit report for ten years.

Chapter 13, on the other hand, will help you manage your debts within 3 to 5 years, and the bankruptcy record will stay in your credit file for seven years.

That said, here's what you can do.

1. Check your credit reports and credit scores

Checking your credit reports will keep you updated about the status of the report and if the entries made are correct. However, it's advisable to wait about 90 to 120 days after your case has been discharged to contact the credit bureaus for your report.

Usually, a Chapter 7 bankruptcy case is discharged within six months of filing for bankruptcy. That's when you begin counting the waiting period within which the credit bureaus should've completed updating your file.

In this case, all your credits named in the bankruptcy should be marked as "discharged in bankruptcy," and your balances reduced to zero. If the entries are wrong, notify the credit bureau to request a review.

If you file a Chapter 13 bankruptcy, your case will be discharged after the end of the repayment period, lasting anywhere between 3 to 5 years.

Similarly, you should ensure that all entries are correct and that your balance is zero on all the credits you paid for in the prepayment plan.

Lastly, make sure you check your scores regularly, even though they may not look good the first few months or years.

2. Make timely payments

Did you know that 35% of your credit score consists of your payment history? If you have any payments to make on the non-dischargeable debts or in the Chapter 13 repayment plan, ensure that you honor all the monthly installments without fail. That'll also build your credit score and improve your records over time.

3. Review your past mistakes and learn from them

Learning from your previous financial mistakes is one of the best ways of recovering from bankruptcy. Now that you know what you did wrong, you'll also figure out how to prevent it from happening again.

For best results, consider getting help from a certified credit counselor to help you with things like budgeting, money management skills, or a credit rebuilding plan.

4. Have a credit rebuilding plan

In this plan, you'll need to incorporate healthy spending habits with some strategies to rebuild your credit. For example, it's healthy to keep your credit balances low to avoid a credit max out.

Some credit rebuilding strategies include:

• Getting a secured credit card.
• Taking out a credit rebuilder loan.
• Considering credit card offers.
• Managing your credit utilization ratio.

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