Bankruptcy is a legal process that a person or business initiates when they cannot meet their financial obligations. Through the legal process of bankruptcy, debtors liquidate their assets or restructure their finances to fund or eliminate their debts that they cannot pay. There are many different types of bankruptcy, and all of the different forms are defined and governed under federal law.
Consumer bankruptcy occurs when an individual who cannot pay back their debts incurred for their personal needs initiates bankruptcy proceedings. Once the consumer bankruptcy proceedings are completed, the debtor that filed for the bankruptcy would no longer be liable for the debts they incurred, minus certain debts deemed not dischargeable by bankruptcy laws.
Additionally, at the completion of the consumer bankruptcy proceedings, the bankruptcy court would enter an official discharge order that releases the debtor from their debts. This discharge order would then give the debtor a clean financial slate.
However, it is important to note that the bankruptcy itself would remain on the debtor’s credit report for up to ten years. Also, filing for bankruptcy can have other lasting consequences on the debtor. As such initiating bankruptcy proceedings should be reserved as a last resort for times of extreme financial hardship.
What Are the Different Types of Bankruptcy?
As mentioned above, there are many different types of bankruptcy. The three main types of bankruptcy in the United States are Chapter 7, 11, and 13. Chapter 7 Bankruptcy, which is also commonly referred to as “liquidation bankruptcy,” allows an individual to discharge all of their debts that can be legally discharged. However, there are specific rules regarding who can qualify and initiate Chapter 7 bankruptcy proceedings.
In order to be eligible to file for a Chapter 7 bankruptcy, a debtor’s income must be either equal to or below the median income in their state. This means that each state will have a different income requirement for filing a Chapter 7 bankruptcy. If the debtor’s income is above the requirement for their state, the court may apply a “means test” based on their previous six months of income, but this is not guaranteed.
In Missouri, the median income to file a Chapter 7 bankruptcy was as follows:
- 1-Person Family: $51,144;
- 2-Person Family: $66,490;
- 3-Person Family: $76,431; and
- 4-Person Family: $90,521.
It is important to note that for families over 4 persons, the bankruptcy code provides that $9,000 per person be added to the highest median income for a family of 4 persons. This means that a 5-person family would be $97,521, a 6-person family would be $108,521, etc.
If an individual is eligible and initiates a Chapter 7 bankruptcy filing, the court will issue an automatic stay for the filer. An automatic stay will prevent creditors from attempting to collect on the debts that the filers owe. Automatic stays also serve to prevent or pause the following actions proceeding or being made against the bankruptcy filer:
- Pending lawsuits against the debtor;
- Wage garnishments of the debtor;
- Filing of liens against the debtor; or
- Seizure of the debtor’s property.
Chapter 13 Bankruptcy, also commonly referred to as “wage earner’s bankruptcy,” is a way for a debtor to restructure their debts to afford payments. Chapter 13 bankruptcy is generally reserved for individuals with incomes higher than their state median but can also be utilized by those who wish to keep their property intact.
Under Chapter 13 bankruptcy, some debts may be eligible for discharge, while others require full payment through a payment plan. Examples of common payment plans are anywhere between three and five years.
An individual is typically considered eligible for a Chapter 13 bankruptcy filing if they meet the following requirements:
- They’re either an individual or married couple;
- As of April 2022, Their total secured debts are equal to or less than $1,395,875.00;
- As of April 2022, their total secured debts are equal to or below $465,275;
- They have not had a bankruptcy petition dismissed within the last 180 days due to failure to appear or comply with the bankruptcy court; and
- They receive credit counseling through an approved counselor within 180 days of filing their petition.
As can be seen, Chapter 13 bankruptcy differs from Chapter 7 bankruptcy in that the borrower attempts to keep their property and is required to continue making payments on their debts. Similar to Chapter 7, Chapter 13 bankruptcy can also affect an individual’s credit for up to ten years after filing. Finally, during the Chapter 13 bankruptcy payment plan process, debtors must adhere to a strict budget without lines of credit. Because of this, many borrowers tend to drop out of the payment plan.
The final of the three main bankruptcy forms is Chapter 11 bankruptcy. This bankruptcy is also commonly known as “reorganization bankruptcy” and is a type of bankruptcy that is available to individuals, corporations, and partnerships. Unlike the other forms of bankruptcy, Chapter 11 bankruptcy has no limits on the number of debts involved in the bankruptcy process.
As such, this form of bankruptcy is the most common choice for large businesses seeking to restructure their debts to become profitable again. Additionally, Chapter 11 bankruptcy is generally more expensive to debtors than the other chapters, and the rate of successful business reorganizations is generally very low.
What Are the Bankruptcy Exemptions in Missouri?
Missouri has opted out of the federal bankruptcy exemptions and created its own exemptions under state bankruptcy law. Some of the most common bankruptcy exemptions in Missouri are outlined below. It is important to note that the amounts listed for these exemptions may be higher for married couples. If you are considering filing for bankruptcy in Missouri, it is a good idea to consult a local attorney familiar with Missouri exemptions.
Homestead Exemption: (i.e., equity in a dwelling used as a residence)
- Missouri law allows exemption of up to $15,000 for a home; or
- Up to $5,000 in a motorhome.
Equity in Automobiles: Missouri law allows for up to $3,000 to be exempt in automobile equity.
- Missouri residents may exempt up to $3,000 in furniture, clothing, books, crops, appliances, animals, and/or instruments;
- Missouri residents may exempt up to $1,500 in wedding rings or $500 in other jewelry;
- Missouri residents may exempt up to one acre or $100 in burial ground; and
- Missouri residents may exempt professionally prescribed health aids.
Tools of the Trade: Missouri law allows for up to $3,000 in professional tools, books, and implements to be exempted.
Wages: Missouri residents may exempt at least 75% of unpaid wages or 90% for heads of family.
Insurance: Missouri residents may exempt all
- Disability or illness benefits;
- Unmatured life insurance policies;
- Life insurance proceeds;
- Up to $5,000 in cash value, dividends, etc. of a life insurance policy; and
- Up to $5,000 in fraternal benefits and social benefits.
Pensions and Retirement: Missouri law allows for the exemption of
- ERISA benefits are necessary for support;
- Employee spendthrift trusts;
- State and large city (over 100,000 people) employee benefits;
- Police, firefighter, and teacher benefits; and
- Public employee or officer benefits.
Public Benefits: Missouri law allows for the exemption of
Alimony and Child Support: Missouri law exempts up to $750 a month in child support or alimony.
Other Exemptions: Missouri law also allows for the following exemptions
- Wrongful death awards;
- Health savings account; and
- Business partnership property.
Wildcard Exemptions: Missouri law finally allows for an exemption for personal property of the filer’s choice for up to $600 in personal property, or the head of household up to $1,250 in personal property, plus $350 for each dependent under age 21.
Do I Need a Lawyer for Help With Missouri Bankruptcy Exemptions?
If you are filing for bankruptcy in Missouri and have questions about Missouri bankruptcy exemptions, you should consult with an experienced Missouri bankruptcy lawyer.
An experienced attorney can help guide you through the bankruptcy process in Missouri and help you determine what exemptions are available to you. Additionally, an attorney can assist you with filing all necessary paperwork and represent you in any in-person proceedings.