Mississippi Bankruptcy Exemptions and Law
Credit cards are probably the most convenient and most dangerous payment method ever invented. Because they are so convenient, when job loss and other financial storms hit, many people use them to pay bills. That's where the danger kicks in. The average credit card interest rate is over 20 percent. At that rate, it doesn't take long to get over your head.
Typically, if unsecured debt, like credit card and medical bills, eats up more than 10% of your monthly income, you probably owe more than you can realistically pay. At that point, you have two options. You can hope things somehow get better, or you can take control of your situation.
Many people know they need to do something, but they do not know their options. A bankruptcy attorney lays out all your bankruptcy and non-bankruptcy alternatives, carefully explaining the pros and cons of each one. Then, whatever option you choose, an attorney is with you until the end of the line.
For the most part, our system of government is a combination of federal and state laws. Bankruptcy is a good example. The federal Bankruptcy Code establishes procedures and many substantive provisions. As outlined below, the Mississippi Code determines property exemptions.
Some Benefits of Bankruptcy
Beginning in the 2010s, the Supreme Court and Consumer Financial Protection Bureau began eliminating some key consumer debt protections. As a result, credit card companies and other banks are more aggressive than ever. They do not care about the reasons you racked up credit card debt or fell behind on your mortgage payments. They just want their money.
Bankruptcy's automatic stay is critical in this environment. Because of these legal and regulatory rollbacks, Section 362 of the Bankruptcy Code is usually the only way to stop:
- Collection lawsuits
- Wage garnishment
- Creditor harassment
Civil judges technically have the power to stop such actions. But they only intervene if there is clear evidence of serious fraud, or there are other extreme circumstances. The automatic stay, on the other hand, is, well, automatic. It usually applies in full the moment debtors file their voluntary petitions, regardless of the underlying facts.
The automatic stay typically remains in effect until the judge closes the case. In a Chapter 13, that could be up to five years.
Once Section 362's protection ends, the bankruptcy judge discharges most unsecured debts, such as:
- Medical bills
- Credit cards
- Revolving charge accounts
- Signature loans
- SBA loan guarantees
“Discharge" means a judge eliminates the legal obligation to repay a debt. But the judge does not have the power to erase the collateral consequences. Here's an example:
Assume Alan has some tax problems with the IRS, which files a lien. Alan files bankruptcy, and with the help of his bankruptcy lawyer, he gets the tax debt discharged. But the lien would remain. Alan's lawyer must address it separately.
In the above example, Alan could discharge his tax debt. That is not always the case. Past due income taxes are priority unsecured debts that are only dischargeable in some situations. Some other unsecured obligations, like past-due alimony and child support, are not dischargeable at all.
Kinds of Consumer Bankruptcy
Chapter 7 is specifically designed for people with more unsecured debts than they can pay. After debtors file their petitions and schedules, the trustee looks for signs of bankruptcy fraud. Such indications include hiding assets, exaggerating exemptions, and income/lifestyle gaps. The trustee normally requests financial documents, such as tax returns and pay stubs, to assist in this probe.
About six weeks after the filing, trustees meet with debtors and verify their identities. Furthermore, a lawyer asks some yes/no scripted questions, mostly about fraud and identity. If everything goes well at this meeting, and it usually does, the judge typically signs a discharge order without holding a hearing.
Credit cards are not the only problem. Past-due mortgage payments were mentioned earlier. Many people fall behind on such payments when they lose their jobs or get seriously ill. Legally, banks may begin foreclosure proceedings if one payment is one day late. Deferrals and grace periods are normally marketing gimmicks with no real effects.
Chapter 13 helps people take care of these delinquencies on their own terms. A Chapter 13 trustee does more than investigate possible fraud and verify the debtor's identity. These trustees also set petitioners up monthly payment plans.
Typically, you give your disposable income to the trustee for either three or five years. The trustee then distributes this money among allowed claims, mostly secured debt arrears. An example of a secured debt in arrears is a car loan on which you've fallen behind.
The automatic stay remains in place during the protected repayment period. So, as long as you remain current on monthly payments and these payments meet some minimal legal requirements, creditors must wait for their money to come in, just like everyone else. A potential consequence of this is that you get to keep your car (it can't be repossessed) so long as you remain current moving forward.
All debtors must meet certain eligibility requirements. To use Mississippi's property exemptions, you must have lived in the Magnolia State for at least two years. Furthermore, all debtors must take two financial management classes. These courses, which are usually available online, only cost a few dollars and only take a few minutes.
There are also some Chapter-specific eligibility requirements. Some of these rules are unwritten and vary in different jurisdictions.
Chapter 7 Requirements
Congress significantly changed the Bankruptcy Code in 2005. The means test was part of these changes. You are eligible for Chapter 7 if your income is at or below the average annual income for your household size in your area. As of November 1, 2020, a Mississippi family of four must earn less than $70,565 a year. This amount changes every few months.
For the most part, the means test figure is set in stone. Some regional variations may apply. It's more expensive to live in cities than in rural areas. Chapter 7's informal requirements are different. They vary in different jurisdictions, and sometimes even among different trustees.
Essentially, if you file Chapter 7, you tell the court “I cannot pay my debts, so take all my nonexempt assets to pay my debts." More on the nonexempt assets bit shortly. For now, let's look at the inability to pay. This issue is the crux of Chapter 7's informal qualifications.
Unless you are at least marginally in the red every month, many trustees question your need to file Chapter 7.
Chapter 13 Requirements
A Chapter 13 filer is making a different claim. Filing a Chapter 13 is like saying “I can afford to pay my debts, but I need a payment plan." Therefore, these debtors must have sufficient disposable income to make a monthly debt consolidation payment. The size of this payment varies depending on the amount of allowed claims. Generally, however, it's usually about the size of a rent or mortgage payment.
If you are unable to complete the repayment plan, your lawyer can usually give you some options. These alternatives include a hardship discharge and a conversion to a Chapter 7.
There is also a formal Chapter 13 bankruptcy requirement. A debt ceiling applies. These petitioners must have less than $400,000 in unsecured debt and $1.3 million in secured debt. These totals include current and past-due amounts.
In Monopoly, players who file bankruptcy immediately lose all their property. That's because there are no property exemptions (protections) in this board game. Fortunately, a real-life bankruptcy is not the same. These debtors have two layers of protection.
The Bankruptcy Code includes a slate of federal exemptions. But Mississippi is an opt-out state, which means these federal law exemptions are unavailable. Some notable state law property exemptions include:
- Retirement account: IRAs, 401(k)s, and other tax-deferred accounts often have a significant financial value as well as a high emotional value. These accounts represent future financial security and a reward for many years of saving. All funds added to these accounts more than one year before filing are exempt. Pension plans and college savings accounts, like 529 plans, are also exempt.
- Public benefits: Many people depend heavily on Social Security, VA disability, unemployment insurance, and other government benefits. Even if these benefits come monthly like income, they are exempt assets in bankruptcy. A Mississippi bankruptcy attorney can help you avoid commingling these funds and make this exemption practically bulletproof. On a related note, most life insurance payments are also exempt, as is the equity in a whole life policy.
- Personal property: Mississippi law protects up to $10,000 worth of household goods, electronics, motor vehicles, and other personal property. The cap pertains to the equity amount as well as the as-is cash value. A motor vehicle is a good example. Most people have very little equity in new cars, even if they have paid tens of thousands of dollars. For the first half of the loan, almost all this money goes to interest. Used vehicles, especially if they have above-normal wear and tear, have practically no cash value.
- Homestead: Mississippi's homestead exemption is rather complex. Normally, owners may protect up to $75,000 of home equity, if the homestead is on less than 160 acres. If you are over 60 and widowed or married, you may apply this exemption to proceeds from the sale of a former residence. If you live in a mobile home, the exemption is usually $30,000.
A bankruptcy lawyer can optimize these exemptions. Your house is a good example. Frequently, home investors offer pennies on the dollar for no-inspection, as-is cash sales. Assume Jean owns her $200,000 home free and clear. She appears to be well over the equity exemption. But no so fast. Her home's as-is cash value might be as little as $40,000. If that's the case, the trustee cannot touch her home.
Only an experienced Mississippi bankruptcy attorney should handle matters like this one. DIY and BPP filers, as outlined below, should not use this tactic.
A few other formal exemption notes. Married joint filers can double many of these exemption amounts. Furthermore, if you are over 70, you get a $50,000 wildcard exemption that shields nonexempt property, like recent contributions to a retirement account or cash in a bank account.
There are a number of exemptions buried deep within various bankruptcy laws that a Mississippi bankruptcy attorney can take advantage of. The best interest of creditors rule is a good example.
Assume Jack has a boat that he cannot protect under the personal property exemption. The trustee believes it's worth about $1,000. The trustee also believes the boat needs about $500 in repairs. Furthermore, sales costs, mostly storage costs, would be another $500. Jack's creditors must pay these expenses.
The math works in Jack's favor. The creditors would gain little or nothing in this transaction. They might even lose money. So, a seizure and sale would not be in the creditors' best interests.
How do I start bankruptcy in Mississippi?
Perhaps because they both involve the f-word, many people think filing bankruptcy is like filing taxes. Indeed, there are some similarities, which is why many people file DIY (Do-It-Yourself) bankruptcies. But imagine filing your taxes without looking at the instructions. Now imagine that you also must calculate depreciation and perform other advanced tasks. Now, a DIY tax return does not seem so simple. A DIY bankruptcy is a lot like that.
A BPP (Bankruptcy Petition Preparer) bankruptcy is like going to H&R Block. These filers get help filling out forms and maybe some basic assistance. But these tax preparers are not accountants. They cannot give you substantive advice. Similarly, a BPP is not a lawyer. A BPP cannot give you legal advice and certainly cannot represent you in court.
Having a bankruptcy lawyer handle your bankruptcy is like having a CPA handle your taxes. For the most part, you turn over your financial information, listen to your lawyer's advice, sign where needed, and that's about it. In other words, you get peace of mind at a time of extreme stress.
Where do I file bankruptcy in Mississippi?
Roughly speaking, if you live in the southern half of the state, you are probably in the Southern District. There are bankruptcy courts in Jackson, Hattiesburg, Natchez, and Gulfport. If you live in the northern half of Mississippi, you are most likely in the Northern District, which has divisions in Oxford, Greenville, and Aberdeen.
BPP and DIY filers must do almost everything at a physical courthouse location. Note that not all of these locations have full-service bankruptcy courts. A lawyer can use the ECF (Electronic Case Filing) system to do pretty much anything over the internet. So, if you partner with a lawyer, it really does not matter where you live.
How do I file bankruptcy in Mississippi without a lawyer?
Bankruptcy forms are available here. The paperwork must be mistake-free. Even typos could have significant consequences. Such errors are false statements on government forms. Additionally, you must meet all court-imposed deadlines and comply with all the trustee's requests, no matter how unreasonable they are. At any bankruptcy hearings, you are on your own against the trustee's or creditor's lawyers. If you can successfully do all these things, you can successfully file bankruptcy in Mississippi without a lawyer.
How much does bankruptcy cost in Mississippi?
Filing fees and professional fees both vary, mostly depending on the location and type of bankruptcy. Filing fees, which normally must be paid in advance, are usually about $350. As for professional fees, most Mississippi bankruptcy lawyers offer sliding scales and payment plans. Many debtors may add professional fees to their Chapter 13 debt consolidation payments.
What debt is not covered by bankruptcy?
Bankruptcy does not cover fraudulent debts. In this context, debt is usually fraudulent if you borrowed money and did not intend to repay it. Bankruptcy does not erase certain obligations, mostly child support and alimony. Some debts, such as student loans and back taxes, are only dischargeable in some situations. Either a Chapter 7 discharge or a Chapter 13 plan covers most other debts.
How much debt do you have to have to file Chapter 7?
There is no formal debt requirement in a Chapter 7. Informally, if credit cards and other unsecured obligations soak up more than 10 percent of your income, you should probably file Chapter 7 bankruptcy.
How Do I Find a Bankruptcy Lawyer?
To protect your property and get a fresh financial start, you can find a local Mississippi bankruptcy attorney 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.