Here is how I explain the decision between Chapters 7 and 13:
First, we split all of your debt between 2 buckets. I know it sounds silly, but stick with me. It makes sense.
Bucket 1 is the debt that you are going to keep paying. Most taxes, child support arrears, and secured debts such as mortgages and car loans for the property you want to keep will go into bucket 1.
Bucket 2 is everything we don’t want to and don’t have to pay for: credit cards, medical bills, payday loans, and other non-priority unsecured debts. Bucket 2 also contains the secured debt for vehicles that are being surrendered as part of the bankruptcy.
We now have two buckets to deal with. Bucket 1 is stuff you will continue paying, and Bucket 2 is everything else.
Chapter 7 dumps out bucket 2 and lets you deal with bucket 1 on your own. If you are currently in your house and car and don’t need help paying off taxes, etc., this is probably the choice for you. It is faster, easier and cheaper but doesn’t help with any of our bucket 1 debt.
If you are behind on the house or car and need help getting caught up, Chapter 13 is likely the chapter for you.
Chapter 13 allows us to set up a payment plan to pay off the debts or arrearages in bucket 1, and only as much as you can afford to pay off the debts in bucket 2. Any bucket 2 debts that you can’t afford to pay over the life of the Chapter 13 payment plan get dumped out just like it would have in Chapter 7. Chapter 13 does not require that you pay 100% of all debts.
Remember, however, that you must show the judge that you can afford to pay for everything you have placed in bucket 1. For example, if you can’t afford the car, the Court will require that it go into bucket 2 to be surrendered.
There are a few other fact-specific issues, such as income restrictions and debt limits, which may push us one way or the other. Our attorneys will help you figure it out at a free consultation appointment.
The Automatic Stay
Whether you file bankruptcy under Chapter 7 or Chapter 13, the automatic stay will take effect. This move halts all debt collection efforts by creditors for a predetermined amount of time.
The automatic stay in Chapter 13 bankruptcy may endure for years, as opposed to Chapter 7 bankruptcy, when it will only remain for around three months.
The average duration of a Chapter 7 bankruptcy is three to four months before the case is dismissed. As a result, debtors can recover more quickly than if they had filed for Chapter 13 bankruptcy. In a Chapter 13 case, payments are often not dismissed until a payment plan has satisfied the whole amount owed. This may last for three to five years.
You need to be eligible before you can file for bankruptcy. If your income is below Missouri’s median income, you must pass the Chapter 7 means test to file for Chapter 7 bankruptcy. You may submit a Chapter 13 filing if it is higher than the median. Debtors cannot apply for Chapter 13 bankruptcy if they owe more than a particular sum.
What Happens to Property
To repay creditors, you may liquidate the debtor’s non-exempt assets during a Chapter 7 bankruptcy. In contrast, Chapter 13 allows debtors to keep all of their property while still obligated to repay their creditors with the equivalent of the value of their non-exempt assets.
What Are the Advantages of a Missouri Chapter 7 Bankruptcy Filing?
- You get a brand-new beginning. Your only debts will be for secured assets on which you decide to sign a “Reaffirmation Agreement” after your bankruptcy has been discharged.
- You are immediately protected from wage garnishment and creditor collection activities on the filing date.
- After the bankruptcy filing date, you own your income and property (save for inheritances), not the creditors or the bankruptcy court.
- No minimum level of debt is necessary.
- Usually, your case is finished, and you are fully released in three to six months.
What Are the Disadvantages to a Missouri Chapter 7 Bankruptcy Filing?
- Your non-exempt property is lost when the trustee sells it. Chapter 7 is not an option if you wish to maintain a secured asset, such as a vehicle or house. Your Missouri bankruptcy exemptions do not entirely protect it.
- The automatic stay established by your Chapter 7 filing only temporarily prevents foreclosure if you are facing it in your house.
- Co-signers of a loan may be held responsible for your debt if they don’t also seek bankruptcy protection.
- You may only file a second Chapter 7 bankruptcy case eight years after the first one if you previously filed one and were successful in having your debts discharged.
- What Are the Advantages of a Missouri Chapter 13 Bankruptcy Payment Plan?
- If you choose and can afford the payment plan, you can keep all your property, exempt and non-exempt.
- Debts may be lowered as part of a Chapter 13 payment plan, even though they are not entirely discharged as in a Chapter 7 discharge.
- You are immediately safe from wage garnishment and creditors’ collection activities.
- More obligations are considered dischargeable (including debt you incurred based on fraud and credit card charges for luxury items immediately before filing).
- Co-signers are exempt from the creditor’s actions if the Chapter 13 plan calls for full payment.
- If you adhere to the plan’s provisions, you are protected from your lender foreclosing on your house.
- Debts not dischargeable under either chapter (like taxes or back child support) provide you extra time to pay them off.
- You may submit a Chapter 13 application at any time.
- You may file more than once.
- You can separate your creditors by class, where different types of creditors receive different payment percentages. This enables you to treat debts where a co-debtor is involved on another basis than debts incurred on your own.
What Are the Disadvantages to a Missouri Chapter 13 Bankruptcy Payment Plan?
- You utilize the money you earn after filing for bankruptcy to arrange a payment plan. Your funds will be restricted throughout the Chapter 13 plan term.
- Due to the complexity of a Chapter 13 application, legal expenses are more significant.
- Your debt repayment plan will run for three to five years.
- For the duration of the 3-5 year plan, you are participating in the bankruptcy court procedure.
- Brokers of commodities and stocks are not permitted to file for Chapter 13 bankruptcy.
What Are the Bankruptcy Exemptions in Missouri?
You must become familiar with Missouri’s bankruptcy exemptions before filing bankruptcy, regardless of the bankruptcy type you select. A specific item, such as your home or car, might be shielded from creditors thanks to an exemption.
You won’t liquidate exempt property in Chapter 7 to satisfy your creditors. You won’t need to consider the exempt property when creating your repayment plan in Chapter 13.
It’s a Show-Me State that has chosen to construct its bankruptcy exemptions list in place of the federal list. The most significant Missouri bankruptcy exemptions are listed here.
The fear of losing their house prevents a lot of Missouri residents from declaring bankruptcy. The good news is that you can exclude up to $15,000 in home equity or $5,000 in mobile home equity using the homestead exemption.
Similarly, under Missouri’s bankruptcy laws, you can exclude a portion of the equity you have in your car. In this situation, you may be exempt for up to $3,000.
It is called the “wildcard” exception since you may use it for about anything. You may exclude up to $600 of its worth, whether it is a family heirloom or a collection of rare coins. Additionally, you are eligible for an exemption of $350 for each child you have and an additional $1,250 if you are the head of your family.
What Are the Steps to Filing Bankruptcy in Missouri?
You are prepared to start the Missouri bankruptcy filing procedure once you have determined which type of bankruptcy to file, identify which assets you would like to exclude, and discovered which Court you must file in. Nine simple steps make up this method.
Remember that Missouri’s Chapter 7 and Chapter 13 bankruptcy procedures differ significantly. These variations are documented in the steps that follow.
Put Your Bankruptcy Documents Together
It will be a lot simpler for you if you have all the documents and information you need right in front of you when you file.
The following are some of the essential details you’ll need to file for bankruptcy in Missouri:
- Your Social Security number
- Your home address
- Your wage and income information
- The name and address of your employer(s)
- A list of all of your creditors
- A list of all of your valuable property, including your homes, land, vehicles, and valuables
- A list of each financial account in your name, including bank accounts, investment accounts, and similar accounts
- A detailed list of your recurring monthly expenses, including rent, mortgage, childcare, and groceries
- Your state and federal tax returns for the previous two years
Get Credit Counseling
In Missouri, you must complete a credit counseling course that has been authorized before officially filing for bankruptcy. These courses are typically provided online and are not too difficult to complete. After finishing the course, you will receive a certificate that enables you to file for bankruptcy at any point within the subsequent 180 days.
Fill Out Your Forms
There is even more paperwork:
- The formal bankruptcy documents
- Your financial data
- Your certificate of completion from your credit counseling course
Many of the details on the papers, including your list of assets and current income, will come from your financial records. These will vary depending on the Missouri court and the type of bankruptcy you choose.
Remember that a repayment plan is necessary for the Chapter 13 bankruptcy procedure. And your bankruptcy trustee will have to approve that strategy. Our knowledgeable bankruptcy attorneys can assist you in creating your repayment plan.
It’s vital to complete this paperwork since mistakes might cause your bankruptcy file to be delayed or damaged. If you engage with our bankruptcy attorneys from our firm, we can complete the paperwork on your behalf and ensure that every item is accurate.
Pay Your Filing Fee
It isn’t entirely free to file for bankruptcy in Missouri if you earn more than a specific amount. You must pay a filing fee if your income is 1.5 times the federal poverty level or more. However, you can ask for an installment plan or even a charge waiver if you cannot pay it all at once.
File Your Bankruptcy Forms in Court
It’s time to print off your documents and bring them to Court to be filed after you have collected all of your information and paperwork (or have our experienced bankruptcy attorneys do it). Please ensure the printed forms are on clear, white paper with an easy-to-read layout, and don’t staple or otherwise tamper with them.
Mail Documents to Your Bankruptcy Trustee
The automatic stay goes into place once you file your bankruptcy paperwork, preventing your creditors from pursuing further payments from you. You are also given a bankruptcy trustee at this stage, who will be in charge of many parts of your case.
It would be best if you mailed your trustee your most current tax return shortly after filing. They could also contact you if they want any further paperwork or details. This might be stressful since all you want to do is concentrate on your family and work, but it’s crucial — and legally mandated — that you comply with your trustee throughout the process.
Take Your Next Bankruptcy Course
You must enroll in a second financial course and submit a certificate of completion to the bankruptcy court within 90 days after declaring bankruptcy in Missouri. This second session focuses more on handling your money once bankruptcy has been discharged. Ensure the course you take, which will likely be online, is offered by an authorized supplier of debtor education programs.
Go to Your 341 Meeting
A 341 meeting, commonly known as a meeting of creditors, will occur if you filed for Chapter 7 bankruptcy around a month after filing. Your creditors are welcome to come here and raise objections to your credit crunch and inquire about your case. Although creditors are required to attend and answer all queries honestly, they frequently choose not to do so at 341 hearings.
The conference will most likely consist of you, our bankruptcy attorneys, and your bankruptcy trustee having a brief conversation about your case.
Get Your Bankruptcy Discharge
Your debts will typically be dismissed three to four months after filing for Chapter 7 bankruptcy. If you file for Chapter 13 bankruptcy and complete your three- to five-year repayment plan, your debts will be forgiven. Once that is over, you are done.
Hire a Bankruptcy Attorney to Ensure It is Done Right
If you try to finish the bankruptcy procedure yourself, many problems could come up. You can misunderstand exemptions and make mistakes on the bankruptcy petition.
With our experience in bankruptcy, Jeppson Law Office can spare you the time and effort of submitting a petition that will be denied. Choosing an attorney who only handles bankruptcy cases might be a wise choice. In addition, the attorney you select needs to be qualified to handle your case.
The financial situation of each individual varies. Our knowledgeable MO bankruptcy attorneys can assess your assets and liabilities to find the best bankruptcy filing option for you. Understanding the differences might help you better comprehend the advantages of each and how the process works. What are you waiting for? Schedule a consultation with our bankruptcy law firm in Gladstone, MO, today!