It’s easy to shut the door, close the blinds, and try to ignore your debts. Denial about your bills will only get you so far, before creditors place judgments against you, try to repossess your home, or make daily life extremely difficult for your family. Instead of trying to ignore your financial problems, consider filing for bankruptcy. You may be able to get rid of a large portion of your debts, making your finances easier and less painful to manage.
The Basics of Bankruptcy
Bankruptcy is broken up into different categories called Chapters. Each Chapter serves a different purpose, helping individuals, families, and businesses. For those struggling with personal finances the two options for bankruptcy are Chapter 7 and Chapter 13.
A Chapter 7 bankruptcy is a liquidation or “straight bankruptcy.” This means that all debts and assets are liquidated to determine the financial status of an individual. The debts are discharged, many of the assets are exempt, and the debtor completes the bankruptcy, Chapter 7, by becoming debt free. A Chapter 7 bankruptcy lasts between three to six months, and will permanently get rid of nearly all unsecured (such as credit card bills) and some secured debt (such as a vehicle or expensive house). While a bankruptcy initially lowers a debtor’s credit score, it begins to rebuild approximately six months after filing, with regular payments to creditors.
A Chapter 13 bankruptcy does discharge a portion of the debts, but it is primarily used to reorganize debts, putting them all in a payment plan that is workable for the debtor. Usually a Chapter 13 is used when a debtors assets are too high, disqualifying him/her from a Chapter 7.
Meet the Qualifications – Bankruptcy Chapter 7
While you may be struggling with debt and desperately need to file for bankruptcy, federal and state law have put regulations in place to ensure and individual will benefit from bankruptcy. The Bankruptcy Reform Act of 2005 describes that debtors need to either fall under the median income level for the state they reside in, or pass the means test.
Missouri Median Income Level
Debtors must meet the level of income for their family size when filing a Chapter 7 bankruptcy or fall under it. If an individual exceeds the average income level as determined by their state, additional information about the debtor’s finances may be required. The median income level for Missouri residents follows. Please note that the average income level can change every year depending on inflation.
1 individual: $39,332
2 individuals: $51,120
3 individuals: $58,610
4 individuals: $69,832
For every family member over four individuals, debtors must add $7,500 per person to the income level base. What if you make more than the average Missouri family? There still is hope, but it will require a more thorough examination of your finances. The means test is a method that is used by the court and bankruptcy attorneys to determine whether an individual’s debts meet the requirements of bankruptcy. This is done with a series of calculations through the means test. Your Missouri bankruptcy attorney may ask you for additional documents relating to your assets and debts for a more complete financial picture.
Protecting Your Assets
Anyone, whether the desire to file for bankruptcy or not, wants to protect the assets they have worked hard to acquire over the years. The Bankruptcy Court recognizes that and have enacted laws called exemptions to allow certain physical property and liquid assets to remain with the debtor after he/she files. There are federal and state exemption laws, but for residents filing in Missouri, only state exemption laws apply. The following list of exemptions applies to residents in Missouri:
- Homestead Exemption: Your home (primary residence) and the land it is on worth up to $15,000. If you own a mobile home the value exempt is $5,000.
- Vehicle: Up to $3,000 in value.
- Personal Affects
- Jewelry: Up $500 in value except wedding rings. Exemption for 1 wedding ring up to $1,500 in value.
- Household Items: This includes books, clothing, art, furniture, animal (pets and livestock), and instruments with a total exemption value of $3,000.
- Fraternal Benefit Society benefits: Up to $5,000
- Social Security benefits: 100%
- Public Safety Officer benefits: 100%
- ERISA benefits: 100%
- Military Survivor Benefit Plan annuities: 100%
- Veterans Administration benefits: 100%
- Pensions: 100% of pensions are exempt for the following individuals
- Police Department
- State Employees
- Highway Patrol
- 100% of illness or disability benefits
- 100% of un-matured life insurance policy
- 100% crop insurance proceeds
- 100% railroad unemployment insurance
- 100% life insurance of stipulated premium plans
- Wild Card: Missouri allows for two wild card exemptions.
- $600 worth of any property of the debtor to be applied to any of the above named exemptions.
- $1250 worth of any property or assets applied to any exemptions, plus $350 for each dependent (under age 18) living in the house.
The amount of each exemption can change from year to year. Check with your Missouri bankruptcy attorney for up-to-date information on state exemption laws.
A bankruptcy is a short process; in a few months you could change the course of your life. If you think that a Chapter 7 bankruptcy is right for you, contact a local bankruptcy attorney today. It can mean the difference between hiding in your room, and coming out to enjoy the sunshine and freedom.
Missouri Bankruptcy Courts
United States Courthouse
131 West High Street, 1st Floor
Jefferson City, Missourri65101-1557
Phone: (573) 636-4015
Charles Evans Whitaker United States Courthouse
400 East Ninth Street
Kansas City, Missouri 64106
Phone: (816) 512-5000
Thomas F. Eagleton United States Courthouse
111 South Tenth Street, 4th Floor
St. Louis, Missouri 63102-1116
Phone: (314) 244-4500