Louisiana Bankruptcy Law and Your Car Loan

Facing financial difficulties can be overwhelming, and understanding Louisiana bankruptcy law is essential, especially when considering the impact on your car loan. If you’re contemplating filing for bankruptcy, it’s crucial to know how it affects your vehicle and what options are available to you.

In Louisiana, there are two primary types of bankruptcy individuals may file: Chapter 7 and Chapter 13. Each has different implications for your car loan.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is often referred to as "liquidation bankruptcy." This means that non-exempt assets may be sold off to pay creditors. In Louisiana, vehicles can be considered exempt up to a certain value, typically around $7,500 for a car owned by the filer. If your car’s equity is less than this exemption limit, you are likely to keep your vehicle.

If you are behind on payments, you can reaffirm your loan, which means you agree to continue making payments to keep the car. However, if you decide not to reaffirm the loan, the lender has the right to repossess the vehicle.

Chapter 13 Bankruptcy

In contrast, Chapter 13 bankruptcy involves creating a repayment plan to pay back a portion of your debts over three to five years. This type of bankruptcy allows you to keep your vehicle while you catch up on late payments.

One significant advantage of Chapter 13 is the ability to "cram down" your car loan. If your car’s value is less than the amount owed on the loan, you may only have to pay the current market value in your repayment plan. This can significantly reduce your financial burden.

How Bankruptcy Affects Your Car Loan

Regardless of the bankruptcy chapter you choose, filing for bankruptcy will impact your car loan in various ways. A bankruptcy filing typically results in an automatic stay, which will pause any collection actions against you, including repossession. However, once the bankruptcy proceedings conclude, the lender can take action if you fail to keep up with your payment schedule.

After bankruptcy, rebuilding your credit may be a priority. Making consistent monthly car payments can help improve your credit score over time. Individuals often find it easier to obtain a new car loan after bankruptcy if they demonstrate responsible financial behavior.

Consulting With a Bankruptcy Attorney

Bankruptcy can be a complex process, and Louisiana bankruptcy law has specific provisions that may affect your situation. Consulting with a knowledgeable bankruptcy attorney can help you understand the nuances of state and federal laws, assess your circumstances, and help you choose the best route for your financial recovery.

In conclusion, navigating Louisiana bankruptcy law concerning your car loan requires careful consideration of your options. Understanding both Chapter 7 and Chapter 13 provisions can empower you to make informed decisions to protect your vehicle while working toward a more secure financial future.