Bankruptcy can offer relief to people overwhelmed by debt, but deciding when to file can be challenging.
Understanding the difference between Chapter 7 and Chapter 13 bankruptcy can help individuals determine the right time to consider this option.
Signs it may be time to file for bankruptcy
There are several warning signs that may indicate it is time to consider bankruptcy. These include falling behind on mortgage or car payments, receiving calls from debt collectors, or relying on credit cards to cover everyday expenses. If monthly income is not enough to cover debt payments, and there is no realistic way to pay off the total balance, bankruptcy may provide a path forward.
Understanding Chapter 7 bankruptcy
Chapter 7 bankruptcy, often called straight or liquidation bankruptcy, eliminates most unsecured debts like credit card bills, personal loans, and medical expenses. Individuals must pass a means test to qualify. This test compares income to the state’s median income level. If approved, non-exempt assets may be sold to pay creditors, though Louisiana law usually protects essentials such as a primary home, basic household items, and some vehicles.
When Chapter 13 may be the right choice
Chapter 13 bankruptcy allows individuals to reorganize debt into a repayment plan lasting three to five years. This option works well for those with a steady income who want to keep their home or car while catching up on missed payments. In Louisiana, Chapter 13 usually prevents foreclosure and repossession by providing a structured path to repay secured and unsecured debts.
Moving toward financial recovery
Bankruptcy can provide a fresh start for people facing overwhelming debt. Whether Chapter 7 or Chapter 13 is the right option, recognizing the signs and understanding Louisiana’s laws can help individuals make an informed decision. By addressing debt through bankruptcy, individuals can take steps toward a stable financial future.