Chapter 7 Bankruptcy is sometimes called a “straight bankruptcy.” In a straight bankruptcy you will rid yourself of all (or almost all) debts while giving up property that is not exempt
It is imperative that you know what property is exempt, and therefore property you can keep, and what property is not exempt before you file a Chapter 7 bankruptcy.
In the state of Tennessee a person is entitled to exempt up to $5,000 of the value of their home. If a married couple file a Chapter 7, then they can exempt up to $7,500 of the value if their home.
For those filers over the age of 62 Tennessee allows an individual a $12,500 homestead exemption. A spouse aged 62 or older who has a spouse under 62 is allowed a $20,000 exemption. A married couple both of whom are over the age of 62 receive a $25,000 exemption.
Tennessee law grants a $25,000 homestead exemption for an individual filing a Chapter 7 who has at least one dependent child. This exemption doubles to $50,000 when a married couple with at least one dependent child files a Chapter 7.
The amount of equity in your house is important to know when considering Chapter 7. If your exempted amount is more than your equity then there is no chance a Chapter 7 Trustee will seek to sell your house to pay creditors.
If the equity in your house is more than the amount you are entitled to exempt then you will have to pay the difference between the equity minus the exemption, or you will risk losing your house when you file a Chapter 7 bankruptcy.
Chapter 7 is probably not a good option if you are behind on your mortgage payment. In that case, a Chapter 13 is probably a better alternative for those wishing to keep the home.
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