The information provided on this post does not, and is not intended to, represent legal advice. All information available on this site is for general informational purposes only. If you need legal help, you should contact a lawyer. You may be eligible for our free legal services and can apply by calling our Covid Legal Hotline at 1-844-244-7871 or applying online here.

You have rights when borrowing money to buy a new or used car or truck. Two federal agencies, The Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC), have information to help you make smart moves when using loans to pay for new or used cars or trucks.

What kind of loan can I use to buy a car or truck?

There are two kinds of car loans, Direct Lending and Dealership Financing.

Direct Lending

Direct lending car loans come from a bank, finance company, or credit union. You will pay the amount loaned to you plus a finance charge. The finance charge is the interest on the loan.

The loan usually lasts somewhere from three to seven years. You may see this written in months, like 36 to 84 months.

See what kind of loans your bank offers. It may save you money over what a car lot offers.

You can shop around with other lenders for a better deal on a loan. Here are the advantages of a direct loan:

  • You know ahead of time how much your loan will cost.
  • You know the loan's interest rate (APR, or annual percentage rate).
  • You know how much money you can borrow to buy a car. This may help you work out a price with a car dealer.
  • An approved car loan ahead of time can help you shop around among different dealers.

Dealership Financing

You apply for dealership financing through the dealer selling the car or truck you want to buy. Your loan with the dealer will say how much you agree to pay, the finance charge on the borrowed money, and how long the loan lasts.

The car dealership usually sells your car loan to a bank, finance company, or credit union. The company that buys your loan will service the account and take payments from you.

The advantages of dealership financing are:

  • A range of ways to borrow money. The dealer may have ties to banks and finance companies with different loan options. But dealerships want to make a profit on the loan. Dealership financing may not give you the best price.
  • Dealers sometimes offer special deals programs. The carmaker may offer a low rate on the loan or something else to get you to buy. They may cover only certain cars and trucks or may only apply to people with strong credit. Ask the dealer if you qualify for a special deal.

What do I need to know before I get a car or truck loan?

If you get a loan, make sure you understand what you are agreeing to before signing any papers. You should know the following:

  • The exact price you will pay for the car or truck.
  • If there is a down payment and how much it will cost.
  • How much money you will owe through the car loan. (This is called the amount financed by the loan.)
  • What the finance charge is (The extra amount over the car price the loan will cost you).
  • The interest rate (APR).
  • How much each payment is, and how many months of payments you will make.
  • If more than one payment a month is needed.
  • The payment due date You can often change this before the loan is made, but you may not be able to change it later.
  • The total sales price (the sum of everything you will pay under the loan).

Should I get more than one loan offer?

Yes. Shop around. It should be free to get a loan offer. You should get a few and compare the financing offers. Focus on more than just the monthly payment amount.

The Louisiana Motor Vehicle Sales Finance Act (La. R.S. 6:969.1) has rules for car and truck loans. It decides how high the interest can be on a loan.  The most you can be asked to pay in interest is between 18% and 33%, depending on things like how old the car is. If you have good credit, your interest rate should be much less.

Find out more at La. R.S. 6:969.10.

How will I know if I can afford the car loan payments?

Add the cost of the car loan on top of everything else you pay for every month, like your rent, mortgage, utilities, food, or other bills.


You have $1,500 to spend each month. After you pay your rent, utilities, food, and other debt payments, you have $150 left over. That means you cannot afford a $300 monthly car loan payment.

Owning a car has other monthly costs like gas, car insurance, and repairs. Insurance on a newer car is often higher than on an older one.

One rule of thumb: spend at most 10% of monthly take-home pay on a car loan payment and 20% monthly for total car expenses.

Here are more resources on figuring out what you can afford to pay for a car loan:

It’s a good idea to create a budget worksheet before starting the loan process:

What if I stretch out the time to pay back the loan to lower my monthly payments?

Most car loans are for 3 – 5 years. Creditors may offer longer-term loans, like 72 or 84 months, i.e., 6 or 7 years. Longer-term loans may also have higher rates (APR).

The more time you take to repay the loan, the more money the loan will cost you. Cars quickly lose value once you drive off the lot. Paying back money over a long time may mean you end up owing more money than the car is worth.

Do I have to buy gap, credit, or disability insurance when I buy a car?

No, it is up to you. Add-on insurance is not required by law. It’s against the law for a lender to put credit insurance in your loan without your knowledge or permission. If you buy it, get a copy of the policy and keep it.

Be aware that buying insurance will increase the total cost of the loan to you since it will likely be financed in the loan. Consider the price and if it’s worth it.

Check your existing insurance policies to avoid duplicating benefits.

Do I have to buy extended warranties when I borrow money to buy a vehicle?

No. If you do, get all the details, including price, time of coverage, limits of coverage, and a copy of the policy.

Can I negotiate with the lender on my loan?

Yes. You should try to get the best deal for yourself. By negotiating for better terms on your loan, you can reduce the amount of money you pay over time. For example:

  • Getting a lower interest rate (APR) means you will pay less to borrow money. The total cost of your loan will be lower.
  • A shorter loan term (making monthly payments for fewer months) will reduce your total loan cost. A longer loan can reduce your monthly payment, but you pay more interest over the life of the loan.
  • A higher down payment, or a higher price for your trade-in, will reduce the total amount financed because you will have to borrow less money.
  • Optional “add-on” products like extended warranties, GAP insurance, or credit insurance that are added to your loan amount will increase your total cost because you will be borrowing more money.

If you do not like the loan terms, you can walk away.

The lender wants me to have a co-signer for my loan. Is this required?

If your credit history is limited or needs improvement, a co-signer with good or excellent credit could help lower your interest rate and may be required by the lender.

Some people have a parent, family member, or friend co-sign. Beware, the person who co-signs is legally saying that they are just as responsible as you are to repay the loan.

You both should think carefully about this decision. If you default on the loan, the co-signer will be sued like you since they are also responsible for the debt. This is true even if the co-signer does not use the vehicle.

Federal law generally prohibits a lender from requiring you to have a co-signer if you apply for a loan individually, and you can qualify under the lender's standards for creditworthiness for the loan.

Can I cancel the sale and financing within three days of the vehicle sale?

No. In Louisiana, once the parties have agreed to the sales contract, it can be valid.

What can I do if I have issues after the vehicle is bought?

You can contact the local Better Business Bureau in your area to see if they can resolve your issues. In the Greater New Orleans area, their number is 504-581-6222.

For a new vehicle sale, you should contact the vehicle manufacturer.

See our other blog post about used car warranties here.

If it is a used vehicle, the Louisiana Used Motor Vehicle Commission “LUMVC” may be able to offer assistance. Call the office at 800-256-2977 or fill out a complaint form at:

You can’t stop making payments on the loan if there are problems with the vehicle. Payments are due until the loan is canceled.

The information provided on this post does not, and is not intended to, represent legal advice. All information available on this site is for general informational purposes only. If you need legal help, you should contact a lawyer. You may be eligible for our free legal services and can apply by calling our Covid Legal Hotline at 1-844-244-7871 or applying online here.

A court can take money from your paycheck if you are working or order money to come out of your bank account or other money you have. This is called garnishment.

How does garnishment happen?

Garnishment can happen if someone sues you for money and you lose in court. If you are sued for a debt, take steps to protect yourself!

You will almost always lose if you do not reply to the case in court. If you lose the case in court, there will be a judgment against you. The winner can file papers to ask the court to “garnish” your money. They will look at your money situation and decide how much money to make you pay.

The Garnishment Judgment will order your job or bank to take money from your paycheck or bank account. The money collected this way will be more than you owe.

How much money will come out of my check to pay the debt?

Louisiana law says how much of your money goes to pay the debt.

The amount depends on how much is left over in your pay after what your employer must take out for federal and state taxes, Medicare, Social Security, health insurance, and retirement.

Sometimes your employer takes money from your check for things not required by law, like optional insurance. That money is not safe from a court order taking it to pay a debt.

Here is an example:

You earn $450 a week. If your employer takes out $120 for taxes and another $20 for optional dental insurance. ($450 - $120 = $310)

That leaves you with $310 each week. The law does not require dental insurance, so the $20 a week is not protected from garnishment. Only $330 is protected.

Then the court will look at the amount of money leftover in your pay in two ways and use the one that takes less from your paycheck.

  1. The court will see how much over $217.50 you have. For this step, the court always protects $217.50 and the taxes, Medicare, health insurance, and retirement your employer must take out. In our example $330 – 217.50 = $112.50. This is the amount the court will consider taking.
  2. The court will also see how much is a quarter (25%) of the money you have left after the things like taxes your employer has to take out. In our example, a fourth of the $330 is $82.50 ($330 ÷ 4 = 82.50). $82.50 is the amount the court will consider taking.

The court must pick the smaller number after looking at the two examples above. In our example, it garnishes $82.50.

The court uses a different number for unpaid child support! The court picks half instead of a quarter of the money left after things like taxes.

Here is a link to a tool to help you figure out your garnishment amount:

Most creditors cannot garnish any federal benefits, like Social Security. Only the federal government can take money out of a federal check to pay back a debt.

For more info:

What about unpaid student loans or taxes and things like that?

Garnishment is different for student loans, taxes, and other things.

If you have unpaid federal student loans, the U.S. Department of Education or anyone collecting for it can only take up to 15% of your earnings after money is taken out for taxes and other things required by law. 20 U.S.C. § 1095a(a)(1).

The government does not have to sue you before taking out money to pay back debt.

If you have unpaid taxes, the Internal Revenue Service (IRS) can take money out of your paycheck without suing in court first. They do this by something called a “levy."

This amount of garnishment is based on your tax filings.

See here for more info:

There are ways that state and local government agencies can collect what you owe. Contact the agency that you owe to find out more.

Why does the garnishment order say I owe so much more than my original debt?

The amount of the Garnishment Judgment will include the amount you owed, plus court costs, interest, and usually attorney fees from when the court made its Judgment against you.

You will also be charged:

  • For court costs for the separate garnishment lawsuit,
  • For your employer to take out the money for the garnishment.
  • For the court to collect the money.

These extra costs can be double or triple the amount of money you owed at the beginning.

How do I stop the garnishment?

The garnishment will continue until all the money owed has been paid. This can take years.

Garnishment will temporarily stop if you are no longer working for an employer. Once the person or company you owe (the creditor) finds out you are working again, they can start the garnishment again.

A bankruptcy filing will stop all garnishments right away. Bankruptcy may be able to get rid of the whole debt. Learn about bankruptcies here:

Other resources can be found here:

For information on Louisiana State garnishments:

The information provided on this post does not, and is not intended to, represent legal advice. All information available on this site is for general informational purposes only. If you need legal help, you should contact a lawyer. You may be eligible for our free legal services and can apply by calling our Covid Legal Hotline at 1-844-244-7871 or applying online here.

If you own your home and are 62 or older, a reverse mortgage loan could help you with significant bills, renovation costs, and other living expenses.

If you are interested in one, please take your time to review and fully understand it. This may not work for everyone. You should also discuss this decision with your family and your heirs, usually your children.

Is a reverse mortgage different than a regular mortgage on my home?

Yes, it differs from other mortgages, but it is also similar. Like other mortgages, it allows homeowners to borrow money using their home as security for the loan. The title stays in your name, but your property will have a loan against it.

Like other mortgages, you could lose the home to foreclosure if you fail to pay for required items such as property taxes and insurance (homeowners or flood).

But unlike other mortgages, you do not make monthly mortgage payments to the lender. The loan gets repaid when you no longer live in the home, usually after your death or sooner, if you sell the property. If one spouse dies, the repayment usually occurs after the second spouse dies. But certain papers may have to be completed promptly when the first spouse dies.

Because interest and fees are charged to the loan each month, the amount owed on the home grows over time. As the amount you owe grows, the amount of equity (what you can get by selling the house) goes down. This is unlike most mortgages, where the amount owed goes down because you pay each month.

A reverse mortgage loan is NOT free money. It is a loan on your house. If you want to fully own the house, you will have to pay back the entire loan amount, including the interest that has been charged.

If your heirs want the house, they will have to pay off all that is owed, including the interest charged over time. Most reverse mortgages give them a year to pay the amount.

NOTE: Most of this information only applies to Home Equity Conversion Mortgages (HECMs), the most common type of reverse mortgage loans.

What are the requirements for a reverse mortgage?

In addition to being at least 62 years old, there are a few other requirements:

  • You need to own the home outright or have paid down a considerable amount of the mortgage, i.e., have a lot of equity in the home.
  • You have to live in the house as your primary residence.
  • Your home must be in good shape. If not, the lender will tell you what repairs need to be made before you can get a reverse mortgage.
  • You can’t be behind on any federal debt.
  • You must pass a credit check and other eligibility requirements for the loan.
  • You must stay current on your property taxes, insurance, and any homeowners association fees for the whole life of the loan. If you get behind on these, the lender can foreclose, and you will lose your home. In most foreclosures, people do not get any money back from the home’s value.

Only one spouse needs to be 62 years old to qualify.

What are the pros and cons of a reverse mortgage?

Reverse Mortgage Pros:

  • If you don’t have a lot of savings or investments but do have much equity built up in your home, a reverse mortgage will allow you to get money that you can use to cover expenses in your retirement.
  • Instead of selling your home to get cash out, you can keep the house and still get cash out of it. This means you don’t have to worry about potentially downsizing or getting priced out of your neighborhood if you have to sell and move. But this only works if you can keep up with property taxes and insurance costs.
  • You can use the money from a reverse mortgage to pay off an existing home loan. This could free up money to pay other monthly expenses since you no longer have to pay that loan’s monthly note.
  • The money you get from a reverse mortgage is considered a loan rather than income and will not be taxed by the IRS.

Reverse Mortgage Cons:

  • You MUST live in the house and pay all property taxes, insurance, and other costs like you would with a traditional mortgage.
  • If you become delinquent on these expenses during the reverse mortgage period or spend most of the year living outside the property, you could lose your home to foreclosure.
  • When you die, your heirs will be required to pay the full loan balance or 95% of the home’s appraised value, whichever is less, to keep the house. If they do not, they will have to sell the house or turn it over to the lender to satisfy the debt. If you want your children or heirs to inherit your home, a reverse mortgage is something you should NOT do.
  • A reverse mortgage eats away at your home’s equity.
  • If you have money from the reverse mortgage put into a savings account or give it away, this could make you ineligible for need-based government programs like SNAP, Medicaid, or Supplemental Security Income (SSI).
  • There are a lot of rules and details to reverse mortgages. The risks may not be worth the extra cash. You should NOT enter any reverse mortgage offer unless you understand the terms well.

Are there any other ways to get cash instead of a reverse mortgage?

Before taking out a reverse mortgage, make sure you understand this type of loan. You may want to look at other borrowing and housing options, such as:

  • A home equity loan (HEL) or a home equity line of credit (HELOC) might be a cheaper way to borrow cash against your home’s equity. However, these loans carry their risks and usually have monthly payments. Qualifying for these loans also depends on your income and credit. You can learn more about these loans here:    and here:
  • Depending on interest rates, refinancing your current mortgage with a new traditional mortgage could lower your monthly mortgage payments. Pay attention to the length of time you’ll have to repay your new mortgage, as it can affect your retirement plans. For example, taking on a new 30-year mortgage when nearing retirement could become a hardship later. Consider choosing a shorter-term mortgage, such as a 10- or 15-year loan. More info on refinancing a mortgage is here:
  • Consider selling your home and downsizing and buying a more affordable home. This could reduce your overall monthly living expenses.
  • There are state and local programs that may help with utilities and fuel payments as well as home repairs. Some localities also have programs to help with property taxes: check with your parish tax office.

Other resources can be found here:

The information provided on this post does not, and is not intended to, represent legal advice. All information available on this site is for general informational purposes only. If you need legal help, you should contact a lawyer. You may be eligible for our free legal services and can apply by calling our Covid Legal Hotline at 1-844-244-7871 or applying online here.

Are you a survivor of Hurricane Ida? Is there a problem with your help from FEMA?

The deadline has been extended to June 1, 2023 to appeal FEMA Denials!

Here are some examples of issues you can try to fix with FEMA:

  • FEMA said I have not given documents that show I own the home.
  • FEMA said I have not given documents to show I lived in the damaged household
  • FEMA did not pay me enough to repair my home.
  • FEMA did not pay me enough for my damaged personal property.
  • FEMA said I do not qualify for Rental Assistance

You can file an appeal if you have any of these issues or if you have new evidence to show FEMA.

You can file an appeal even if the deadlines have passed on your paperwork. With the appeal, give FEMA the reason why you are late.

Your appeal must be in by June 1, 2023.**

If you need help with an appeal or other Hurricane Ida issue, please call Southeast Louisiana Legal Services at 1 (844) 244-7871

** In some cases, you can file an appeal in Federal Court after this date, but we advise caution. We recommend consulting with an attorney if you need to appeal FEMA’s decision higher.

The information provided on this post does not, and is not intended to, represent legal advice. All information available on this site is for general informational purposes only. If you need legal help, you should contact a lawyer. You may be eligible for our free legal services and can apply by calling our Covid Legal Hotline at 1-844-244-7871 or applying online here.

You should check your bank statements carefully every month. Contact your bank or credit union right away if you see a problem. A problem could be money taken out without your permission or purchases you did not make.

When should I tell my bank or credit union?

Do not wait. Contact the fraud department of your bank or credit union right away. If you wait too long, you might be stuck with the bad charge.

You may have more rights to challenge the problem if you tell the bank or credit union within 60 days after the statement that shows the problem. If you report it later, you still may be able to get a charge removed unless your bank has a reason why notice within 60 days would have made a difference.

What does the bank or credit union have to do after I report the problem?

Your bank or credit union must look into the issue within ten business days after you tell them about the problem. They have 20 days to look into it if your account has been open for less than 30 days.

If they find a mistake, they one business day after that to fix the error. They have 3 business days after that to contact you and report their findings. If they on time, they must give you a temporary credit.

This temporary credit is for the amount of the bad charge, minus no more than $50. It stays there while the bank or credit union looks into the problem.

The bank or credit union doesn’t always have to issue a temporary credit. If you alert the bank or credit union by phone, they can make you send this information in writing. If they say to report it in writing and you don’t send the information within 10 business days, they don’t have to give you the temporary credit.

The bank or credit union has at least 45 days to resolve the problem. They get up to 90 days if the money changed hands in a foreign country, if the problem happened within 30 days of opening the account, or if the problem deals with a debit card purchase.

The bank or credit union may find that the transaction was correct. They must tell you in writing that they are taking back the money credited to your while they looked into it.

Do I need to contact the store involved with the problem on my account?

Yes, it is a good idea to contact the store and dispute the purchase.

What if I think my debit card or pin was stolen or lost?

Tell your bank or credit union right away or at least within two business days of finding out about the loss or theft. If you meet the deadline, they cannot charge you for more than $50 that gets charged after the card was stolen or lost. If you miss the deadline, you could be responsible for up to $500 of the charges.

You cannot be charged for any of the charges if you report your card as lost or stolen before it is used by someone else.

Never write your PIN on your debit card. Do not keep the PIN in your wallet. This can help protect you if your card or wallet is lost or stolen.   Use a PIN that only you can remember and no one else would know.

Most credit card companies will not make you responsible for any charges after loss or theft.

What if my bank or credit union is still paying these charges out of my account?

Contact your bank or credit union as soon as you can and contact the merchant to cancel the service. Tell them that you are taking back authorization for these charges.

Include information to help the bank identify the charges. Tell them the name of the merchant, your account number with the merchant, and the amount(s) and date(s) of the charge(s).

You can also ask your bank to place a stop payment on a pre-authorized transaction at least 3 business days before the next payment is scheduled to be made. They may charge a fee. You should ask for the stop payment in person at the bank or in writing.

What if my bank or credit union does not resolve this for me?

You can file a complaint with the Consumer Financial Protection Bureau (CFPB). The CFPB is a federal government consumer protection agency.

More info is here:

If your bank is licensed in Louisiana, you can also file a complaint with the state here:

Other resources:

The information provided on this post does not, and is not intended to, represent legal advice. All information available on this site is for general informational purposes only. If you need legal help, you should contact a lawyer. You may be eligible for our free legal services and can apply by calling our Covid Legal Hotline at 1-844-244-7871 or applying online here.

New rules can help people cancel federal student loans in bankruptcy. The law calls this getting a debt “discharged.” The U.S. Department of Justice and the U.S. Department of Education will help with the new rules. This applies to bankruptcy cases filed after November 17, 2022. Bankruptcy is complicated. Get a lawyer to help you if you can. You may qualify for free legal help from Southeast Louisiana Legal Services.

What is the law about using bankruptcy to discharge federal student loans?

The law makes it hard to discharge federal student loans in bankruptcy court. A person must prove that repaying the loans creates “undue hardship.” It is hard to prove “undue hardship.”

This is what it takes to prove “undue hardship” in a bankruptcy case:

  • You can’t pay back your federal student loans and have a basic standard of living.
  • Your financial hardship will last most of the loan repayment period.
  • You made good-faith efforts to repay the loan before filing for bankruptcy.

How will the new rules make it easier to discharge federal student loans?

The Justice Department will help United States Bankruptcy Courts find cases where federal student loans should be discharged.

How do I use bankruptcy to discharge federal student loans?

There are multiple kinds of bankruptcy cases. You must file for bankruptcy under Chapter 7 or Chapter 13. For more about bankruptcy, see our other post on “Bankruptcy Basics.”

Find a lawyer to help you if you don’t know if you should file for bankruptcy or what kind of bankruptcy case to file. It is always best to have a lawyer if you can.

In the bankruptcy case, you or your attorney have to file for an “Adversary Proceeding” to have the bankruptcy court consider canceling your federal student loan.

The Justice Department will ask the person filing for bankruptcy (the “debtor”) to complete a form. Your answers will help the Justice Department review your federal student loan discharge claim.

The form will ask about the money situation for you and your household. Most of your income and expense information is probably already in the bankruptcy court papers.

The Justice Department and the Department of Education will review your federal student loan claims and money situation and use the “undue hardship” test mentioned above.

The government will decide whether to ask the court to discharge your student loans. Even if your situation does not seem to meet the test, the government can still ask the court to discharge the loans.

What will the government look at?

  1. Your Ability to Pay Now
    • The government will see if your expenses are the same or more than your income and if this means you cannot pay back your loans now.
  2. Your Ability to Pay in the Future
    • The government will see if you can pay back your loans in the future. Here are some things that could show you cannot repay your loans in the future:
      • You are 65 or older.
      • You have a disability or ongoing injury that affects your income.
      • You were unemployed for at least 5 of the last ten years.
      • You did not get the degree for which you took out the loans; and
      • The loan has not been held from payment by an “in-school” payment status for at least the last ten years.
      • You can use other facts to show that you cannot repay the loans.
  3. Your Good Faith Efforts to Repay
    • You must show good faith about repaying the loan or loans. You will need to show at least one of the following things to prove good faith:
      • That you made a payment.
      • You applied for deferment or forbearance (not in school or grace period ones);
      • You applied for an IDRP (Income Driven Repayment Plan);
      • You applied for a federal consolidation loan.
      • You responded to outreach from a loan servicer or collector;
      • You cooperated with the Department of Education or its servicer on repayment options, forbearance, deferment, or loan consolidation options; or
      • You cooperated with a third party you believed would help you to manage your student loan debt.

Are there additional court costs to get federal student loans discharged?

Not if you use bankruptcy court. There are no additional court costs once you have filed in U.S. Bankruptcy Court.

What loans do the new rules cover?

The new rules cover Direct Loans and other loans held by the U.S. Department of Education.

So far, the new rules do not apply to Federal Family Education Loans (FFEL) held by guarantors or to Perkins Loans still held by the school.

The new rules do NOT apply to any private student loans.

What can I do with my FFEL and Perkins loans?

Pay attention to the news. The Department of Education may change rules for FFEL and Perkins loans. Or you can get an attorney to help you review your student loans and determine if a Chapter 7 bankruptcy is right for you.

Here are other resources:

The information provided on this post does not, and is not intended to, represent legal advice. All information available on this site is for general informational purposes only. If you need legal help, you should contact a lawyer. You may be eligible for our free legal services and can apply by calling our Covid Legal Hotline at 1-844-244-7871 or applying online here.

What is bankruptcy?

The United States Supreme Court states that Bankruptcy is meant to provide "a new opportunity in life, unhampered by the pressure and discouragement of pre-existing debt."  It is intended to give people a fresh financial start.  It allows them to free themselves of current debt and to start new productive lives unhampered by past financial problems.

Filing bankruptcy cannot cure every financial problem and is not appropriate for every individual. But it may make it possible for financially distressed families to obtain relief from debt.

What type of bankruptcy can I file?

Individuals can either file Chapter 7 or Chapter 13

  • Chapter 7 Bankruptcy should be considered when most of the consumer's debt is unsecured. A debt is secured if it includes a mortgage or lien on things you own – like a car note or house note. But you may also have signed rights to items you own for other loans, in which case they may be secured. For Chapter 7, the debtor usually has no major assets. But some people can file a Chapter 7 even if they own a home.
  • Chapter 13 Bankruptcy allows someone to stop and cure foreclosures and repossessions without losing their property. It gives a person time to pay off past due amounts.
  • In Chapter 13, the debtor will submit and enter a repayment plan for at least three years and up to 7 years.
  • Chapter 13 also has special help for some types of debts.

 What happens if I file a bankruptcy?

A Bankruptcy may end your having to pay much or all of your debt.  This is called “discharging” the debt. You are no longer legally obligated to pay debts when they are discharged.

It may stop foreclosure proceedings on a home and allow you to catch up on payments.

It may force a creditor to accept less payment on a secured debt when the creditor has demanded payment in full.

It will immediately stop any garnishment of your wages and debt collection harassment.

It will immediately stop all current legal proceedings about whether you owe money, such as lawsuits.

What does a bankruptcy filing NOT do?

A Bankruptcy might not allow you to keep things you have that are pledged in a note (such as your home for a house note or car for your car note).

It will not allow you to get out of debts owed to some government agencies, like child support, alimony, most student loans, criminal fines, and most taxes.

It will not protect co-signors when only the person who made the loan files for bankruptcy. Your co-signor still owes the full amount.

It will not end any debts obtained through fraud or intentionally injuring someone.

Does the debtor decide on which Chapter to file under?

Under current bankruptcy law, the debtor's "current monthly income" will determine if they can file under Chapter 7 or must file under Chapter 13.  This is known as the “means test.”  Each state has a table used to decide this.  In Louisiana, for a household of 2, the yearly income limit to file a Chapter 7 is $61,042.  So, if your gross income is below this amount, you can file a Chapter 7.

But as noted above, how much you own in secured assets and other issues can also make you need a Chapter 13.