If a consumer feels that they can no longer manage debts, they may file bankruptcy. Bankruptcy is a legal process that can help individuals with certain debts, but there are several kinds of bankruptcy. The two main types that consumers file in Louisiana are Chapter 7 and Chapter 13.
Chapter 7 bankruptcy
Chapter 7 bankruptcy allows consumers to remove some unsecured debts, or debts without collateral, such as credit card debt. However, not every unsecured debt is removed in bankruptcy, which includes student loans, domestic obligations and debt accrued from criminal acts. Student loans may be an exception in some cases if the consumer can prove that paying the debt will cause a hardship.
The filer must also sell some nonexempt property to pay unsecured creditors, which includes second homes and jewelry. The trustee assigned to the case values the assets, sells them and distributes the sale proceeds among creditors. If the filer has met all the bankruptcy requirements, they commonly get a notice of discharge in three to five months.
Chapter 13 bankruptcy
Chapter 13 bankruptcy is a debt reorganization process that consolidates debts into manageable payments under a court-approved plan devised by the filer. Chapter 13 is for filers who earn enough money to pay their debts and who don’t pass the Chapter 7 means test.
Chapter 13 sets a debt limit of $1,257,850 for secured debts and unsecured debts at $419,275, which may be lowered. While Chapter 13 doesn’t require selling assets, the filer commonly must pay secured creditors the value of the asset.
Bankruptcy enacts the automatic stay, which temporarily prevents creditor collections and garnishments. Since the process affects credit for several years, consumers should carefully consider their options.
