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Missouri Bankruptcy Exemptions and Law
Banks and credit card companies reinforce the myth that reckless overspending fuels bankruptcy filings. The statistics say otherwise. Two-thirds of consumers file bankruptcy because of high medical bills. So, if you are dealing with financial distress, you probably had little or no control over the circumstances which caused it.
Consumer bankruptcy helps people like you regain control over their own finances. Moneylenders are used to dictating repayment terms without considering things like your ability to pay. Bankruptcy includes an income-based repayment plan for those who need it. Bankruptcy also gives you the power to decide what obligations you will pay.
Bankruptcy has significant benefits, but the process is rather complex. Many hidden financial benefits and property exemptions are available. Only an experienced Missouri bankruptcy lawyer helps your family take full advantage of these concealed benefits. So, if you do not work with the best available attorney, you are missing out on some things which could make a huge difference to your way of life.
Missouri Bankruptcy Law
The federal Bankruptcy Code controls most bankruptcy procedures. This federal law puts debtors first and gives them a fresh financial start when they need it most. Missouri law is also quite debtor-friendly. Many of the first lawmakers in the Show Me State were fleeing oppressive debt by moving west. Back then, that was the only escape possible. Missouri's property exemptions, which are discussed below, are a good example.
Medical debt is perhaps the most oppressive kind of consumer debt. Given the escalating level of medical bill inflation, these bills are often higher than anyone can pay.
Until recently, relief was available through several channels. But the Consumer Financial Protection Bureau recently scaled back some important consumer protections. So, bankruptcy's automatic stay might be your one remaining ally. And a powerful ally it is. As soon as debtors file their voluntary petitions, Section 362 of the Bankruptcy Code immediately halts adverse creditor actions like:
- Lien placement
- Wage garnishment
- Creditor harassment
The Automatic Stay usually remains in effect until the judge closes the bankruptcy case. That time period could be up to five years. So, these debtors have time to erase delinquent mortgage payments and other secured debt arrearage on their own terms.
Bankruptcy does more than delay collection activity. It also discharges (eliminates) the obligations which triggered this activity. Bankruptcy provides long term financial relief by getting rid of unsecured debts like:
- Medical bills
- Signature loans
- Credit cards
- Payday loans
- Revolving debt accounts
Discharge eliminates the legal requirement to repay a debt. But it does not eliminate the debt itself. Assume George has some IRS trouble and the Service files a lien. He files bankruptcy, which eliminates his tax debt. However, the lien will remain in place. A bankruptcy judge does not have the power to dissolve it. So, a Missouri bankruptcy lawyer must address it in a separate proceeding.
Past-due taxes are priority unsecured debts. So are student loans. These unsecured debts are only dischargeable in some situations. Criminal fines and family support obligations, like child support, are completely nondischargeable. Once again, however, a bankruptcy lawyer can address these issues separately, perhaps through an IRS repayment plan or a motion to modify a divorce decree.
These overall provisions apply to both types of consumer bankruptcy in Missouri. But there are some important differences between the two (Chapter 7 and Chapter 13).
Chapter 7 Bankruptcy
Chapter 7 bankruptcy quickly eliminates unsecured debt and gives you a fresh start. After you file your voluntary petition, the trustee reviews your paperwork and looks for evidence of bankruptcy fraud.
Income/lifestyle discrepancies are a good example. If Peter drives a new luxury SUV and he reports income of $2,000 a month, something probably does not add up. Other fraud badges include undervalued assets, miscategorized assets, and creditor preferences (e.g. paying six months of rent in advance). The trustee usually requests financial documents, such as recent tax returns, to help in this evaluation.
The bankruptcy trustee will also verify your identity. You will probably need a government-issued photo ID and a Social Security card. If these things are unavailable, a lawyer might be able to arrange substitutes.
Assuming all goes well at a 341 meeting, most judges issue discharge orders in Chapter 7s without requiring hearings.
Chapter 13 Bankruptcy
If secured debt delinquency, like past-due mortgage payments, is a problem, Chapter 13 bankruptcy might be the solution.
The trustee's role is significantly different in a Chapter 13. They'll still look for evidence of fraud and verify your identity. But they'll also set you up on an income-based repayment plan for either three or five years, mostly depending on your income level. The monthly debt consolidation payment must be high enough to pay all allowed claims before the bankruptcy ends.
“Allowed claims" usually includes secured debt arrearage, priority unsecured debt arrearage, and administrative costs.
Financial circumstances usually change during the protected repayment period. If fortunes rise or fall, an attorney can usually obtain an early exit from bankruptcy or a hardship discharge.
There are different kinds of bankruptcy, and there are different eligibility requirements for each kind. There are also some common requirements. To take advantage of the state's property exemptions, you normally must have lived in Missouri for two years. Furthermore, all debtors must complete two brief financial management classes.
Chapter 7 Qualifications
The 2005 reforms to the Bankruptcy Code added the financial management class requirements. These reforms also added the means test requirement to Chapter 7 bankruptcies. These filers must have below-average incomes. This amount was $89,418 per year for a Missouri family of four as of late 2020.
If you are above this limit, there are other ways you can qualify for Chapter 7. Furthermore, there are some unwritten Chapter 7 eligibility requirements that vary depending on where you live. A local bankruptcy lawyer will know if it's possible for you to satisfy these requirements.
Chapter 13 Qualifications
Chapter 13 debtors usually deal with the opposite unwritten requirement. As discussed above, these debtors must make substantial monthly debt consolidation payments. So, the trustee must believe they have the means to make these payments. If you cannot consistently make these payments, you could be ineligible for Chapter 13.
These debtors must also be beneath the debt ceiling. As of January 1, 2021, these amounts are $1.3 million in secured debt and $400,000 in unsecured obligations.
The property exemptions in the Show Me State prevent creditors from forcibly liquidating your assets in order to repay debts. In many cases, banks do not need court orders to take such actions. So, outside bankruptcy, debtors could lose their assets and never have a chance to tell their side of the story or work things out.
You cannot get a fresh start if you lose most or all of your assets when you file bankruptcy. Therefore, a Missouri consumer bankruptcy shields things like:
- Home equity: Missouri's homestead exemption protects up to $15,000 of home equity. Mortgage loans are amortized (interest first). So, unless you have lived in your home for more than about half the loan period, you probably have essentially no equity. Some loopholes, such as a tenancy of the entirety, are available that could extend the exemption even further.
- Personal property: Debtors may protect up to $8,000 worth of household goods, like electronics, jewelry, tools, and furniture. The $8,000 cap refers to the items' as-is cash value (garage sale value). Most household goods, regardless of their condition or emotional value, have almost no as-is cash value.
- Retirement accounts: Public pension accounts, like firefighter pensions, are completely exempt. So are ERISA-affiliated plans, if the money is necessary for support. On a related note, life insurance payments are usually exempt as well.
- Financial benefits: Social Security benefits, VA disability benefits, and other government payments are completely exempt. So are most private financial benefits, such as alimony and child support.
- Wildcard: If you are the head of household, you may protect up to $1,250 in otherwise nonexempt property, like cash in a bank account. Most of your current wages are exempt, so the funds in your checking account are probably yours to keep. A $350 per child increase is also available.
- Motor vehicle exemption: The homestead exemption's financial principles apply to the state's $3,000 motor vehicle equity protection. Most used cars have almost no financial value. Mark may own his 2015 Audi free and clear, but the vehicle is probably only worth a fraction of what he paid for it.
Some of these formal exemptions come from state laws. A few come from the federal nonbankruptcy exemptions, which Missourians are also able to claim.
Like the informal qualifications, these rules are unwritten. However, if a Missouri bankruptcy lawyer takes the appropriate steps, informal exemptions are every bit as strong as the written ones.
Mootness is a good example. Assume Harry has money in his checking account when he files bankruptcy. He claims the wildcard exemption covers it, but the trustee claims its value is too high. Before the judge holds a hearing, he spends the money on important living expenses. At that point, it does not matter who owned the money, because it is gone. The trustee cannot force Harry to repay the missing money to the bankruptcy estate.
Connect With a Diligent Attorney
A fresh start is available through bankruptcy. All you have to do is claim it. To begin the process, speak with a Missouri 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.