Louisiana Bankruptcy Law: What Happens to Secured Debts
Understanding Louisiana bankruptcy law is crucial for individuals facing financial difficulties. One of the core aspects of bankruptcy is how it handles secured debts. Unlike unsecured debts, which do not have collateral backing them, secured debts are tied to specific assets. Common examples include mortgages and car loans.
When filing for bankruptcy in Louisiana, individuals can potentially eliminate or restructure their secured debts under different chapters of the bankruptcy code. The most common types are Chapter 7 and Chapter 13 bankruptcies, each serving distinct purposes.
Chapter 7 Bankruptcy and Secured Debts
In a Chapter 7 bankruptcy, debtors can wipe out most unsecured debts, but the treatment of secured debts differs. If you have a secured debt, you have several options:
- Surrender the Property: You can choose to surrender the asset tied to the secured debt. This means you will give up the property, and the lender can then sell it to recover their losses.
- Reaffirm the Debt: Sometimes, clients want to keep their property. In this case, they can reaffirm the debt, agreeing to continue making payments after bankruptcy. This option is generally advisable only if the debtor is confident they can meet the payment obligations.
- Redemption: If the value of the property is lower than the debt owed, debtors may file for relief under ‘redemption’ allowing them to pay only the current market value to eliminate the debt.
Chapter 13 Bankruptcy and Secured Debts
Chapter 13 bankruptcy offers more flexibility for handling secured debts. This process involves creating a repayment plan to pay off debts over three to five years. Key features include:
- Retention of Property: Under this chapter, you can retain your property while restructuring the debt. This is especially beneficial for those looking to keep their homes or cars.
- Modification of Debt Terms: Debtors can negotiate lower monthly payments or reduced interest rates on certain secured debts during the repayment plan.
- Protection Against Foreclosure: Chapter 13 can help halt foreclosure proceedings on your home. It allows you to catch up on missed mortgage payments over time without losing your home.
Impact of Louisiana Exemptions
It's important to note that Louisiana has specific exemptions that protect certain amounts of equity in your property. This can influence how secured debts are treated during bankruptcy. For instance, Louisiana residents may be allowed to exempt a portion of their home equity, protecting it from creditor claims.
Conclusion
Navigating secured debts under Louisiana bankruptcy law can be complex. The choice between Chapter 7 and Chapter 13 will depend on individual circumstances, including the type of debt, the equity in the property, and long-term financial goals. Seeking legal advice from a bankruptcy attorney knowledgeable in Louisiana's laws is highly advised to ensure that you make informed decisions that suit your situation.