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Louisiana Legal Blog

Refinancing a loan prior to a discharge

Louisiana residents and others who have gone through a bankruptcy may be able to refinance a debt prior to the case being discharged. It is important to note that not all creditors will work with individuals who are in the middle of a bankruptcy proceeding. Once a creditor has been found and loan terms proposed, an individual will then need to ask the court for permission for the refinance to take place.

The first step in that process is to meet with the bankruptcy trustee. He or she will review the proposed transaction to determine if it is reasonable. A debtor will also need to show that he or she is able to make the new proposed payment on time. There will likely be a fee to file a motion, and that fee will be added to other balances being repaid during a bankruptcy case.

Discharging student debts in bankruptcy

Some people in Louisiana who are considering filing for bankruptcy might wonder whether their student loans can be discharged. While it's not impossible to get rid of student loans through bankruptcy, it can be very difficult.

Both private and federal student loans are supposed to be exempt from discharge, but there is a provision that allows it in cases of "undue hardship." This phrase has never been specifically defined by Congress, but in all circuit courts with the exception of the 1st and 8th, a standard called the Brunner test is used. The 1st circuit lacks a definite standard while the 8th evaluates hardship using similar criteria to the Brunner test.

Discharging student loans in bankruptcy

Anyone in Louisiana carrying around substantial student loan debt may understandably wonder if they can get a fresh start with bankruptcy. Unfortunately, student loan debt is normally not dischargeable. This is an increasingly common concern in the United States since student loan debt, which collectively totals more than a trillion dollars, now ranks second only to mortgage debt as the most common type of consumer debt.

Since 2005, federal and private student loans have been exempted from discharge under common forms of bankruptcy. However, there are some exceptions that may allow debt of this nature to be discharged, such as experiencing "undue hardship." The typical way to assess "undue hardship" is with a type of legal test known as the Brunner test, which is used by most circuit courts.

The consequences of missed credit card payments

Louisiana residents who fail to make credit card payments could face a variety of penalties. They could include late fees or a higher interest rate on future balances. In some cases, a person could experience a hit to his or her credit score. This is generally true whether the late payment was the result of a job loss or an inability to handle a large balance.

However, credit card companies may be more lenient with individuals who are willing to continue making payments until their financial situation improves. Those who wait too long to get a handle on their past due payments could have their accounts sent to collections. Credit card companies may also choose to sue those who fail to make payments. It is important to note that other credit card issuers may take action if a past due payment shows up on a credit report.

Understanding Chapter 7 and Chapter 13 bankruptcy

People in Louisiana who are facing crippling debt may use personal bankruptcy as a path to a new financial future. When individuals declare bankruptcy, they can file for either Chapter 7 or Chapter 13, depending on their circumstances and finances. The right choice depends on what a person hopes to achieve through their filing and the type and amount of debts.

Under Chapter 7 bankruptcy, a person's debts are essentially liquidated. All of a filer's items that are deemed to be non-exempt are sold off by a bankruptcy trustee, and the resulting income is used to pay debts. Once that process is completed, all remaining debts will be discharged. In most cases, it takes four to six months to complete a Chapter 7 bankruptcy. In order to be eligible to file for Chapter 7, however, a person must pass a means test. This compares the filer's income to the median income in the state. If the person's income is too high for eligibility, Chapter 13 is the only remaining option.

The details surrounding a Chapter 13 case

Louisiana residents who are facing serious debt problems can consider filing for Chapter 7 or Chapter 13 bankruptcy. Those who file for Chapter 13 protection will repay creditors for up to five years. In exchange, they reserve the right to maintain property such as a home. The amount of the payments made to creditors will be determined by how much disposable income a filer has.

During a repayment period, it is generally necessary to obtain approval to make changes to the agreed upon payment plan. Priority and secured debts generally get precedence over unsecured debts. Examples of priority debts include taxes owed, child support and alimony. Secured debts include home or auto loans while unsecured debts include credit card or medical bills. Certain debts such as child support or taxes owed cannot be discharged at the end of the repayment period.

Louisiana credit card debt burden among the highest

It would take longer for the average Louisiana household to pay off credit card debt than for almost any other state in the country. According to data published by CreditCards.com, the average household credit card debt in Louisiana is $8,110, and it would take the average household 17 months to pay it off. Nationwide, people are struggling with debts of all kinds; where a person lives makes a difference when it comes to credit card burden.

The state with the longest credit card burden is New Mexico where the average household income is $46,744 per year and the average household outstanding credit card debt is $8,323. CreditCards.com calculated that it would take people in New Mexico, on average, 18 months to pay off credit card debts and they would pay an extra $1,320 in interest over that time. The time calculations were based on the strategy of dedicating 15 percent of income to pay down debt.

Some for-profit school victims' loans to be cancelled

Some students in Louisiana and across the country will find relief from their student loan debt after the federal Department of Education announced that it is cancelling $150 million in student loans. Secretary of Education Betsy DeVos opposed the 2016 regulations that sought to cancel the loans, which were taken out by students who attended schools that had made false promises to students or later closed. In many cases, these loans were taken out to attend for-profit institutions. Despite DeVos' opposition, a federal judge previously ruled that attempts to block the regulations were illegal.

The Education Department said that 15,000 borrowers had already been identified who were eligible for an automatic discharged on the basis of their schools closing or misrepresenting their programs. Over half of these loans, $80 million, are related to Corinthian Colleges. This chain of for-profit institutions closed all of its schools in 2015, leaving many students in thousands of dollars of debt without the opportunity to complete their educations.

Debt increases but it may not be a bad thing

Louisiana residents have contributed to the nearly $4 trillion in debt that Americans owe collectively. About $1 trillion of that debt is attributed to credit cards with another $2.93 trillion from other debts such as auto and student loans. Mortgage balances are not considered to be part of the $3.93 trillion figure. According to LendingTree, credit card balances are expected to increase by 5 percent through the end of 2018, which could bring that number right to the $4 trillion mark.

That would represent a $1 trillion increase in debt since 2013. While recent growth in consumer debts may worry some, an economist from LendingTree isn't that concerned. It was noted that Americans have put $2.5 trillion more in the bank than they have on a credit card or into a vehicle. Furthermore, homeowners have $10 trillion more in home equity than they did in 2008 while incomes are also growing at a strong rate.

Time restrictions on multiple bankruptcy filings

Filing for bankruptcy is often thought of as a one-time thing, and most filers believe they'll never have to file again after their first bankruptcy is finalized. For some people in Louisiana, though, more than one filing might be necessary during the course of their lives. Technically, there is no restriction on the number of times an individual can file for bankruptcy protection, but there are restrictions placed on when subsequent bankruptcies can be filed. The applicable time period varies based on the types of bankruptcy involved.

If a person has already gone through Chapter 7 bankruptcy, for example, and had it successfully discharged, he or she will have to wait at least eight years from the date the first case was filed before filing Chapter 7 again. If a person has already gone through Chapter 7 and wants to file for Chapter 13 bankruptcy protection, he or she must wait at least four years from the date the Chapter 7 case was filed.