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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.