Louisiana Bankruptcy Exemptions and Law
Coronavirus Information: Louisiana's bankruptcy courts are closed to the public. Judges, court staff, and court clerks still do their jobs. But there are no live hearings and the filing desk is closed. Telephonic hearings are available, as is a dropbox. Trustees (people who manage cases for judges) have also reduced operations. Meetings and other interactions are now conducted virtually. As the COVID-19 pandemic drags on, no one is sure what tomorrow will bring. Click here to find the latest information about court closings and other restrictions.
If you find yourself in overwhelming debt, you are not alone. Serious illness, job loss, and other unexpected financial storms can lead to an unending debt cycle. Bankruptcy can get you out of it.
The federal Bankruptcy Code has most of the bankruptcy laws you will follow in your case. But it allows states to set what are called bankruptcy exemptions — the property you are allowed to keep in bankruptcy. Most of Louisiana's property exemptions, which are discussed below, are in the Revised Statutes.
Some Bankruptcy Basics
The aforementioned financial storms affect almost everyone at one time or another. Yet most creditors have very little patience when they strike. Payment deferrals and forbearances are usually marketing gimmicks. When bills come due, creditors want their money, and they want it now.
Bankruptcy's automatic stay shields your family from adverse creditor action like nothing else can. This adverse action includes things like:
- Wage garnishment
- Collection lawsuits
- Creditor harassment
Other available remedies are usually very limited or have strings attached. For example, a civil judge technically has the power to stop these things. But judges only take action in extreme circumstances, like a bank foreclosing on a battered women's shelter because it missed one payment. Making matters worse, because of some regulatory and legal rollbacks in the 2010s, creditors are more aggressive than ever.
Section 362 of the Bankruptcy Code applies to creditors, but it does not apply to the trustee. The property exemptions prevent the trustee from liquidating your assets to pay your debts. We promise we'll get to the property exemptions soon.
Before we get there, we need to talk about debt discharge. Most people file bankruptcy primarily to eliminate debt. Everything else, including the automatic stay and property exemptions, are necessary emergency measures. Typically, bankruptcy discharges unsecured debts, such as:
- Credit cards
- Signature loans
- Medical bills
- Revolving credit accounts
- Payday loans
These debts are the most stressful kinds of debts. For example, the average credit card interest rate is over 20%. So, families can make double or even triple payments each month and barely make a dent in the balance due.
Discharge also helps you take control of your unsecured debts. The possibility of discharge gives a bankruptcy lawyer the upper hand during negotiations for permanent relief like partial loan forgiveness or a lower interest rate.
Kinds of Consumer Bankruptcy
Different financial storms affect different families in different ways. So, there is no such thing as a one-size-fits-all bankruptcy. Depending on your situation, a bankruptcy lawyer will usually recommend one of the following approaches.
Chapter 7 Bankruptcy
When their incomes drop, many people use credit cards to maintain their previous lifestyles. That approach might be unwise, but it's certainly not dishonest. Chapter 7 bankruptcy is usually a good option for these families. Chapter 7 discharges most unsecured debts in a matter of months. Some unsecured debts, such as student loans, are only dischargeable in some situations.
Especially if you have no assets, a Chapter 7 is frequently straightforward. The trustee verifies your eligibility, often by reviewing documents like a Social Security card and recent bank statements. If all goes well at a subsequent meeting, and especially if you have a bankruptcy lawyer to advocate for you, judges usually do not hold hearings before they sign discharge orders.
Chapter 13 Bankruptcy
Other families in debt move money from secured debt payments, like house payments, to other obligations. Chapter 13 bankruptcy helps these families retain these assets (keep their property) and eliminate debt.
Asset retention involves a repayment plan, which usually lasts three or five years. The automatic stay's shield stays up during this period. So, banks must accept the income-based repayments, at least in most cases. Banks cannot pressure debtors to pay more money or pay it faster.
At the end of the protected repayment period, the judge discharges most remaining unsecured debts. So, your family has a zero past-due balance on all its secured debts, and no unsecured debts to worry about. That's the very definition of a fresh financial start.
As mentioned, most bankruptcy laws and rules are in the Bankruptcy Code or Louisiana Revised Statutes. Other rules are unwritten. Here are the formal and informal qualifications you must meet to file bankruptcy.
Some 2005 bankruptcy reforms introduced several new bankruptcy qualifications, in addition to the already-existing honest and unfortunate requirements. For example, all debtors must now complete two brief financial management classes.
Additionally, Chapter 7 debtors must now pass the means test. You are eligible for this form of bankruptcy if your annual income is below average. As of November 1, 2020, the average income for a family of four in Louisiana was $82,529.
If your income is substantially higher, other and more effective options might be available, such as non-bankruptcy debt negotiation. A bankruptcy lawyer can talk with creditors and potentially convince them to lower the interest rate or offer other relief.
A debt ceiling applies in Chapter 13 cases. As of January 1, 2021, these debtors must have under $400,000 in unsecured debt and $1.3 million in secured debt. These totals include delinquent and current obligations. Once again, if you are above the ceiling, other options are normally available.
Do not let the “informal" designation mislead you. Failure to meet informal qualifications can torpedo your case just as quickly as a failure to meet formal requirements.
The unwritten qualifications normally are related to the unwritten statements that debtors make. Essentially, Chapter 7 debtors say “I cannot pay my debts, so take all my nonexempt assets to pay my debts." As for the inability to pay, the debtor's expenses must usually exceed the debtor's income. If the opposite is true, this informal statement appears dishonest. As for exempt assets, we promise we're almost to this discussion.
Chapter 13 debtors essentially say “I can afford to pay my debts, but I can't pay them at once, so I need a payment plan." So, if the debtor's income does not exceed the debtor's expenses, this statement appears dishonest. There are practical considerations as well. If the debtor cannot make the debt consolidation payments, the trustee usually does not approve the plan.
Monopoly players who declare bankruptcy lose everything they have. Individuals who declare bankruptcy in the real world may take advantage of some written and unwritten exemptions. These protective provisions allow you to keep most or all of your property.
If you have lived in Louisiana for at least the last two years, you may use the state's property exemptions to protect your property. These exemptions include:
- Home equity: The homestead exemption in the Bayou State shields up to $35,000 of home equity if the property is used as a primary residence and located on under five acres in the city or under 200 acres in the country. The exemption is larger in some cases, such as bankruptcies that involve a terminal illness. Unless you have paid off more than half the loan, you probably have little equity in your property, no matter how much money you have paid.
- Motor vehicle equity: The same financial principles apply to your car, truck, SUV, or other motor vehicle. The law protects up to $7,500 of equity. If you drive a new car, you probably have practically no equity in it. If you drive a used car, especially one which needs any work, it probably has almost no financial value. Some people can shield additional motor vehicle equity in some cases.
- Personal property: $5,000 worth of household goods, such as electronics and furniture, are exempt. The as-is cash value rule often comes into play here. A consignment store might pay $200 for a $2,000 suit. Debtors must use an asset's as-is cash value on Schedule A. This exemption also applies to tools of the trade and federal tax EIC refunds.
- Financial benefits: Social Security, workers' compensation, VA disability, and other government benefits payments are exempt. So are most FSOs (Family Support Obligations), like child support and alimony payments. Most retirement nest egg accounts are also exempt, as are tax-deferred college savings and other such accounts.
The federal nonbankruptcy exemptions are also available in Louisiana. Among other things, these federal exemptions protect up to 75% of current wages.
Many inexperienced lawyers, and certainly debtors trying to DIY bankruptcy, do not know anything about some legal loopholes that can protect your property and save your family thousands of dollars.
The best interests of creditors rule is a good illustration. Assume Ted owns a hunting lodge that the formal exemptions do not shield. The trustee plans to liquidate it. As part of this process, the trustee estimates that a buyer would pay, at most, $1,000 for Ted's lodge. The trustee also notes that the cabin needs about $500 in repairs and that sales expenses, such as an auctioneer's fee, would be another $500.
These numbers show that liquidation would not be in the creditors' best interests. At best, they would see very little money. They might even lose money. Seizing the hunting lodge only punishes Ted, and the Bankruptcy Code does not allow such actions.
How do I start bankruptcy in Louisiana?
Many people, especially if they are filing no-asset Chapter 7s, simply download the forms and file pro se, without a Louisiana bankruptcy lawyer. In most cases, however, a DIY (Do-It-Yourself) filing is a bad idea. The process is very complex, and if things go sideways, you are on your own against the creditor's or trustee's lawyers.
It's tough to invest money in a bankruptcy lawyer. But this investment always pays emotional and financial dividends. A lawyer handles all the complex paperwork. That gives you peace of mind during a very unsettling time. Furthermore, as mentioned, an experienced Louisiana bankruptcy lawyer can unlock some advanced options. So, if you do not have an attorney, you are not getting the most out of your fresh start.
Where do I file bankruptcy in Louisiana?
There are three federal districts in the Bayou State. Some of them have multiple sub-locations. If you live in or around New Orleans, you are most likely in the Eastern District. The Middle District covers the Baton Rouge area. If you live anywhere else in Louisiana, you are probably in the Western District.
DIY and BPP filers must conduct most or all their business at a physical court location. Thanks to the ECF (Electronic Case Filing) system, a bankruptcy lawyer's office is also a bankruptcy court, at least for most purposes.
How much does bankruptcy cost in Louisiana?
Filing fees, which are usually about $350, are normally payable upfront. Some judges occasionally allow installment payment plans or grant fee waivers. Additional fees apply for additional filings, such as an amended creditor matrix or an amended bankruptcy schedule. Stringent financial qualifications apply.
Professional fees, such as a BPP's fee or a bankruptcy lawyer's fee, vary significantly. Most attorneys, unlike most BPPs, offer sliding scales and payment plans to almost everyone who asks.
Is Chapter 7 or Chapter 13 bankruptcy better?
Generally, a Chapter 13 looks better on your credit report than a Chapter 7. If you file Chapter 13, you repay your secured debts and some of your unsecured obligations. Any bankruptcy is better than foreclosure, repossession, etc.
How many times can you file Chapter 13 in Louisiana?
According to federal law, you can file Chapter 13 more than once in Louisiana. A waiting period, which is usually about three years, applies between discharges. However, many people file Chapter 13 immediately after the judge closes a Chapter 7, simply to take advantage of the extended repayment period. This common strategy is called a Chapter 20 bankruptcy.
How long does it take to rebuild credit after Chapter 7?
Many people raise their credit scores dramatically in the months following discharge. Obtaining a credit card, using it every month, and paying it off every month is an outstanding way to demonstrate responsible credit management skills.
Contact a Hard-Working, Experienced Attorney
Your family deserves nothing less than a fresh start free from oppressive debt and creditor harassment. So, contact an experienced Louisiana bankruptcy lawyer today.
Note: State laws are always subject to change through the passage of new legislation, rulings in the higher courts (including federal decisions), ballot initiatives, and other means. While we strive to provide the most current information available, please consult an attorney or conduct your own legal research to verify the state law(s) you are researching.