Louisiana Bankruptcy Law Blog

When debt becomes overwhelming for a person, filing for bankruptcy is rarely the thing that one considers. However, when a person in Louisiana and elsewhere finds that they cannot make ends meet, bankruptcy can offer some important protections that make it a viable choice.

In many bankruptcy cases, a large amount, if not all, of the filer's debt is dischargeable. Medical bills, credit cards and other debts are just a few of those that may be resolved in bankruptcy. However, student loans cannot be discharged under the changes to the bankruptcy rules enacted as part of the 2005 Congressional reforms. These non-dischargeable debts include both private and federal student loans, and can only be discharged in rare situations.

Economic challenges can impact anyone in Louisiana or elsewhere, whether or not they have celebrity status. In these difficult economic times, it can be hard to make ends meet, even for those who appear to have a great deal of money. When a person finds that the money that he or she brings in each month can no longer cover expenses, Chapter 7 bankruptcy protection may provide the breathing space one needs to confront his or her financial problems and plan for a return to economic security.

For example, famed football star Warren Sapp reportedly filed for Chapter 7 bankruptcy on March 30. The former athlete, who also appeared on the TV show "Dancing with the Stars" and has garnered a second career as an NFL sports commentator, reported owing more than $6.7 million to his creditors. He only has around $6.45 million in assets. The listed debts are said to include amounts owed for back child support and alimony.

A recent study by Transunion may interest Louisiana citizens who may have credit card debt. Transunion reports that while consumers believe credit card debt is a higher priority than their mortgage, those same people tend to pay off their auto loans before addressing these debt obligations. Specifically, consumers believe that transportation is an extremely important part of their lives.

Researchers believe the trend comes from a poor economy and stagnant real estate values. Due to this, consumers are paying off credit cards prior to their mortgages. However, with unemployment remaining at a high rate, transportation has trumped both. A Transunion quarterly analysis of four million consumers' bill paying habits reflects that 39.1 percent of people with delinquent mortgages are current on their auto loan and credit cards. According to the research, only 9.5 percent of consumers were delinquent on an auto loan but current on credit bills and mortgage payments.

Large amounts of debt can be overwhelming for Louisiana residents. Months of trying to pay bills on limited income can cause stress on even the strongest of relationships. Once a bankruptcy filing becomes advisable, there can be a great feeling of relief for the filing party as they look forward to conquering their debt and getting a new start.

However, a recent report suggests that the feeling of relief may be interrupted by the IRS when former debtors receive forms asserting that taxes are owed on forgiven debt. These 1099-C tax forms are being sent to debtors at an increased rate by creditors, even on forgiven debt. Reports say that 6.4 million tax forms will be sent out by creditors this year, which is up from 3.9 million in 2010. The good news for many who have filed for bankruptcy is that debts discharged in a bankruptcy case are not taxable.