Chapter 7 Bankruptcy in Missouri: A Comprehensive Overview

Introduction

Chapter 7 bankruptcy, commonly referred to as “liquidation” bankruptcy, provides relief to individuals who are overwhelmed by unsecured debt and lack the means to repay it. This legal remedy allows qualifying debtors in Missouri to discharge most, if not all, of their unsecured debts and start fresh financially. While Chapter 7 can be a powerful tool, the process is complex and involves a thorough examination of the debtor’s financial situation, assets, and debts.

This article aims to provide an in-depth look at Chapter 7 bankruptcy in Missouri, covering eligibility, the filing process, exemptions, and the impact of a Chapter 7 discharge.

Eligibility for Chapter 7 Bankruptcy

Before filing for Chapter 7, debtors must meet specific eligibility requirements. The key consideration is the means test, which was implemented as part of the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). The test is designed to ensure that only those who truly cannot afford to repay their debts are allowed to discharge them through Chapter 7.

Income Qualification: A debtor’s income must be below the median household income for Missouri. As of 2023, the median income for a household of four in Missouri is approximately $94,914, though this figure changes annually. If a debtor’s income is below this threshold, they are automatically eligible to file for Chapter 7.
Means Test Calculation: If the debtor’s income exceeds the state median, they must pass a means test that considers their disposable income after deducting certain allowable expenses. If the debtor has enough disposable income to repay a portion of their debts under a Chapter 13 repayment plan, they may not qualify for Chapter 7 and might have to file for Chapter 13 instead.

Filing Process for Chapter 7 Bankruptcy in Missouri

The Chapter 7 filing process can be broken down into several steps, beginning with pre-bankruptcy credit counseling and ending with the discharge of eligible debts.

1. Pre-Bankruptcy Credit Counseling

Before a debtor can file for Chapter 7 bankruptcy, they must complete a credit counseling course through an agency approved by the U.S. Trustee’s Office. This course provides information on financial management and alternatives to bankruptcy. The debtor will receive a certificate upon completion, which must be filed with the bankruptcy petition.

2. Filing the Petition

To initiate a Chapter 7 case, the debtor must file several forms with the U.S. Bankruptcy Court for the Western or Eastern District of Missouri, depending on where they reside. These forms include:

Voluntary Petition (Form 101): This document provides the court with basic information about the debtor’s identity and the nature of their case.
Schedules A-J: These forms require detailed information about the debtor’s assets, liabilities, income, and expenses.
Statement of Financial Affairs: This outlines the debtor’s recent financial transactions, including any transfers of property or large payments to creditors.

A filing fee of $338 must be paid, although this may be waived or paid in installments under certain circumstances.

3. Automatic Stay

Upon filing the bankruptcy petition, an automatic stay goes into effect, halting most collection efforts by creditors. This includes wage garnishments, foreclosure proceedings, and lawsuits related to debt collection. The automatic stay provides immediate relief to the debtor and allows them time to reorganize their finances.

4. Appointment of the Bankruptcy Trustee

The court will appoint a Chapter 7 trustee to oversee the case. The trustee’s role is to review the debtor’s financial documents, identify any non-exempt assets that can be liquidated to pay creditors, and ensure that the case proceeds in compliance with the Bankruptcy Code. The trustee may also conduct a 341 Meeting of Creditors, where creditors can ask the debtor questions about their financial situation under oath.

5. Exemptions in Missouri

Missouri allows debtors to protect certain assets through bankruptcy exemptions. Missouri is an “opt-out” state, meaning debtors must use state exemptions rather than federal ones. Common Missouri exemptions include:

Homestead Exemption: Debtors can exempt up to $15,000 of equity in their primary residence.
Motor Vehicle Exemption: Up to $3,000 of equity in a vehicle can be protected.
Personal Property Exemption: Clothing, household goods, and appliances up to $3,000 are generally exempt.
Wildcard Exemption: Up to $600 of any other personal property, plus an additional $1,250 if the homestead exemption is not fully used.

These exemptions play a critical role in determining whether the trustee can liquidate assets for the benefit of creditors.

6. Debt Discharge

After the 341 Meeting, and assuming the debtor complies with all court requirements, the court will issue a discharge order within a few months. This discharge wipes out most unsecured debts, including credit card debt, medical bills, and personal loans. However, certain debts cannot be discharged, such as:

Child support and alimony: These are domestic support obligations and cannot be discharged.
Student loans: Unless the debtor can prove “undue hardship,” student loans typically survive a Chapter 7 filing.
Tax debts: Some federal and state tax debts may not be discharged unless they meet specific conditions.

Effects of a Chapter 7 Discharge

While Chapter 7 bankruptcy offers the benefit of wiping out unsecured debts, it does come with significant long-term consequences:

Impact on Credit: A Chapter 7 bankruptcy remains on a debtor’s credit report for ten years. This can make it difficult to obtain new credit or loans, though many debtors find that their credit begins to recover within a few years if they manage their post-bankruptcy finances responsibly.
Loss of Non-Exempt Assets: The trustee may liquidate non-exempt assets to pay creditors, which can include valuable personal items, secondary vehicles, and non-homestead real estate.
Reaffirmation Agreements: In some cases, a debtor may choose to enter into a reaffirmation agreement to keep a secured asset like a car. This means they agree to continue making payments on the debt despite the bankruptcy discharge.

Conclusion

Chapter 7 bankruptcy in Missouri can be a lifeline for individuals struggling with overwhelming debt. However, it is not a decision to be made lightly, as it comes with both immediate relief and long-term consequences. By understanding the process, the eligibility requirements, and the implications of filing, individuals can better assess whether Chapter 7 is the right choice for them.

It is highly recommended that anyone considering filing for Chapter 7 bankruptcy consult with an experienced Missouri bankruptcy attorney. An attorney can provide personalized advice based on the debtor’s specific financial situation and help navigate the complexities of the bankruptcy process.

Todd Miller is a monthly contributor and regularly writes and speaks on various legal topics including estate planning, probate, and elder law. He formed the Law Office of Todd Miller, LLC, 1305 Southwest Blvd., Suite A, Jefferson City, Missouri in 2006. He has been recognized as 2016 Adviser of the Year by GolfInc; Golf Tax Consultant of the Year by Boardroom Magazine three times; and “10 Best” attorneys by the American Institute of Family Law Attorneys and “10 Best” attorneys by the American Institute of Criminal Law Attorneys. Mr. Miller earned his juris doctorate degree from the University of Missouri School of Law in 1999 and graduated with honors from Lincoln University in 1991. You may find him at www.toddmillerlaw.com (573) 634-2838 or on Facebook, LinkedIn, and Twitter.