Understanding Chapter 7 And Chapter 13 Bankruptcy

Person looking for documents in a filing cabinet.

On behalf of Trenton Grand of Grand Law Firm posted in Bankruptcy on Friday, January 4, 2019.

People in Louisiana who are facing crippling debt may use personal bankruptcy as a path to a new financial future. When individuals declare bankruptcy, they can file for either Chapter 7 or Chapter 13, depending on their circumstances and finances. The right choice depends on what a person hopes to achieve through their filing and the type and amount of debts.

Under Chapter 7 bankruptcy, a person's debts are essentially liquidated. All of a filer's items that are deemed to be non-exempt are sold off by a bankruptcy trustee, and the resulting income is used to pay debts. Once that process is completed, all remaining debts will be discharged. In most cases, it takes four to six months to complete a Chapter 7 bankruptcy. In order to be eligible to file for Chapter 7, however, a person must pass a means test. This compares the filer's income to the median income in the state. If the person's income is too high for eligibility, Chapter 13 is the only remaining option.

Chapter 13 bankruptcy is a longer process. A three-year or five-year plan is developed to repay outstanding debts. During this time, the filer must keep up with current bills as well as the repayment plan. This option only works for those with a consistent income. The plan must be accepted by the court, and people must return to court if they face financial changes that mean the repayment plan is no longer feasible.

Some types of debt, like child support, back taxes and student loans, generally cannot be addressed in bankruptcy. However, filing can be an important step toward achieving a new financial future. A bankruptcy lawyer can help a client understand their options and move forward to find debt relief.

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