If you have made debts that you are no longer able to fulfill, the U.S. Federal bankruptcy code offers you debt relief through filing for bankruptcy. The common chapters for personal bankruptcy are in Chapter 7 and Chapter 13.
Chapter 13 bankruptcy is called the wage earner’s bankruptcy because it simply reorganizes your debts into a repayment plan that is more doable than the original terms of the debt.
Chapter 7 bankruptcy, on the other hand, is called liquidation bankruptcy because it involves liquidating assets to pay debts. Additionally, in contrast to bankruptcy Chapter 13, Chapter 7 offers debt relief through the discharge of debt.
We at E Orum Young Law, a bankruptcy law firm in Monroe, Louisiana, are committed to guiding you through bankruptcy. Consult with a Monroe, LA bankruptcy attorney today to know more about the different types of bankruptcy.
1. Credit Counselling
The first step for all individuals filing bankruptcy is to take credit counseling courses. These sessions are conducted by an agency approved by the U.S. Trustee in Louisiana and must be taken within 6 months before filing
2. Checking Eligibility
You then check if you qualify to file for a Chapter 7. These individuals are automatically qualified:
- Disabled veterans that gained most of the debt in active duty or homeland defense duty,
- Business owners whose debts are mostly from the business,
- People with incomes below the state median income.
To check if you qualify for the last category, you must first compile your household’s total income. This includes all of your household’s salaries, financial aids received child support proceeds, received alimony, and so on. You then compare it to the state’s published median income level. For Louisiana in 2021, it’s:
|Household Size||Monthly Income||Yearly Income|
If your income is above, you may still qualify through the means test calculation. The goal of the means test calculation is to see if you have any disposable income to pay your debts after paying your obligations. This is done by once again taking your total household income and subtracting the following expenses:
1. Expenses established by the IRS based on national standards
These are necessities including clothing, food, housing, transportation, etc. Take note that for this step, you will be deducting amounts set by the IRS, not the amount that you spend for these categories.
2. Actual expenses
If the allowance the IRS sets is not enough, you may go over the budget that they set. However, you must be able to show that these expenses are reasonable and necessary. Other necessary expenses that are not accounted for in the previous step may be included here.
3. Payments for secured and priority creditors
Secured debts are those that are backed by a property including mortgages and car loans while priority debts include tax debts and court fines. Priority debts typically are not discharged under Chapter 7 and they usually hold the most serious consequences if they are not settled.
4. Administrative expenses
Administrative expenses are those associated with filing a Chapter 13. This is done to see if you could afford to file a Chapter 13 instead of Chapter 7.
After you have subtracted these expenses, you then check to see if your leftover income is enough to pay for at least 25% of your remaining debt. If it is, you will not be qualified to file a Chapter 7 and will have to file a Chapter 13 instead.
3. Compiling and Filing Bankruptcy Forms
After checking your eligibility, you can then start compiling the necessary bankruptcy forms. These include a bankruptcy petition, finance forms, means test forms, as well as any local bankruptcy forms. These requirements differ by bankruptcy jurisdictions, so you should contact them for the full list of forms.
It is also highly recommended to contact a local attorney because they would be the most knowledgeable on the forms necessary, and the processes involved. Contact a Monroe, Louisiana bankruptcy attorney today to help you breeze through the process.
You then file your forms which officially start your case. Once you do this, you are automatically placed under an automatic stay, a bankruptcy protection law that says your creditors may no longer contact you to make collections.
For a debtor to contact you at this point is against the law and you must take note if your creditors persistently contact you because it can be grounds for creditor harassment.
Once you file your forms you will also have to pay the filing fee. If you cannot pay for it outright, it can be split into four payments. If you can’t pay even after that, you can ask the court to waive your filing fee. Of course, this is subject to certain qualifications.
4. Meet with your Bankruptcy Trustee
The bankruptcy court will also assign to you a bankruptcy trustee. You will need to forward to him the necessary documents, including paycheck stubs, tax returns, bank statements, etc.
Your trustee will also be responsible for sorting your assets as exempt and non-exempt. Exempted assets include those deemed necessary to make a living including your house, a modest car, and groceries.
Non-exempt assets are the inverse, those deemed unnecessary for daily life including expensive collections, extra vehicles, and extra properties.
These non-exempt assets will be liquidated and used to pay off as much debt as possible, starting with your secured debts, followed by your unsecured debts.
If you have any outstanding unsecured debt, you will have to tell the bankruptcy court how you will deal with those debts. You may continue paying for them after filing, or you may also return the collateral of the debt to the bank.
5. Undergo a Debtor Education Course
A debtor education course teaches you how to manage money and use credit after you file for bankruptcy. This is a necessary step before completing your discharge.
6. Get Your Discharge
Once you have completed all the steps above, all your dischargeable debts will be dismissed. You will no longer have to pay for them, and your creditors will not be allowed to come after you for them. Congratulations!
Filing bankruptcy can be an arduous process. We recommend that you talk to a bankruptcy lawyer to make the process easier and ease your mind a bit. Contact one of our Monroe bankruptcy lawyers at E Orum Young Law today!