How To Keep Your Assets Safe in a St. Louis Bankruptcy

I have done thousands of bankruptcy consultations over the years with many, many clients. But the question of whether or not you can keep your assets when you file a St Louis bankruptcy is always high on the list. This is of course a very big concern for most folks, and that is why I usually spend so much time addressing this issue in my consultations. So let’s delve right into it!!

To begin with, there are two main chapters of bankruptcy that an individual (or married couple) may file: St Louis Chapter 7 and St Louis Chapter 13. In the most basic description I can give (for the sake of time and space), a Chapter 7 is a straight discharge of your unsecured debts (like credit cards, medical bills, and payday loans); a Chapter 13 is a repayment plan over the course of three to five years during which certain debts are paid back (such as high interest car loans, tax debts, back child support, and mortgage arrearage).

Regardless of which chapter of St Louis bankruptcy that you file, our goal is always going to be two-fold: 1) we will want to get rid of all your debt; 2) we will want to make sure that all of your assets are protected. Most people tend to think of a bankruptcy as a way to cancel out your burdensome debt (and that is definitely the main benefit!!) But the last thing you want to happen is for one of your precious assets to be taken from you by the Bankruptcy Trustee. And that is precisely why it is so important to hire a good St Louis bankruptcy attorney to help you get through the process!!

So let’s start with the chapter of bankruptcy that is most frequently filed in St Louis: Chapter 7. As mentioned above, the best way to describe a Ch7 is a “liquidation / discharge”. We already discussed the discharge side of the equation (this is where the court knocks out all of your unsecured debts). But it is the liquidation part that most people are not aware of. This is the part where the federal government might take one of your assets, liquidate it (i.e. sell it to the highest bidder), and use the proceeds to pay off your unsecured creditors.

Why would the court wish to sell off any of your assets? In a nutshell, here is the deal you are cutting with the government: the court will get rid of all your debts (medical, credit cards, payday loans, old gym memberships, you name it), as if these debts never existed in the first place; this will in turn allow you to quickly rebuild your financial standing (primarily by increasing your credit score back where you’d like it to be); but if you own an asset that has a great deal of value (or at least an asset that your bankruptcy attorney cannot protect) that you could theoretically sell by yourself to pay off your creditors, then the government will do that for you. This is the basic structure of the deal. And like any deal, you have to give a little in order to gain a lot.

So the next logical question would be: Which assets do I have to be worried about? The most direct answer to this is simple: You have a duty to disclose all of your assets to the court when you file a bankruptcy; this would include “big ticket” items like real estate and motor vehicles; but the court’s definition of an asset is pretty broad, so the other items you need to disclose would include things like bank accounts, personal injury claims (even if you have not yet filed a lawsuit), tax refunds, jewelry, fire arms, and stocks & bonds.

Now the real question that all of my clients want an answer to is this: How do we keep my assets protected (so that the Bankruptcy Trustee does not try and sell off my stuff)? And the answer to this questions is also straightforward: Your attorney will use certain governmental “Exemptions” to eliminate any equity that your assets might have. If the Exemptions do in fact cancel out the equity, then your asset will be safe, and the Trustee cannot touch it.

So let’s look at a specific example. Let’s say you have a piece of real estate with a mortgage attached to it. The balance of the mortgage is $125,000. And let’s also assume that the fair market value (FMV) of this real estate is $100,000 (in other words, if you were to sell the real estate, you would likely receive 100K for it). In this scenario, you would be described as being “upside down” on your real estate. This means that you owe more than the house is worth. As a result, there is no equity in your home. Why? Because the only way we can describe your house as having equity is when the real estate is worth more than what you owe against it. Let’s use the example above to show how this works, except this time, let’s flip the numbers. Now the house has a mortgage balance of $100K, and the FMV is $125K. In this set of facts, there is equity of $25K (meaning, if you were to sell the house using this configuration, you would realize a profit of $25K).

And this is where it gets really important in the world of bankruptcy, because we will need to know what the value of the real estate is. Because if there is too much equity in the house, then the Bankruptcy Trustee will demand turnover of the asset (so that he can liquidate it). But the court does allow you to use what is called a “Homestead Exemption” to cancel out up to $15,000 of equity. If this Exemption does the trick, then your home will be safe in a St Louis Chapter 7 (because on paper, after the Exemption is applied, there will be no equity).

So let’s apply this Homestead Exemption to the example above (in which you have a $100K mortgage balance, and the house has a value of $125K). When we apply the Homestead Exemption, it will almost look (on paper) as if you now have a mortgage balance of $115K. This is because we are cancelling out $15K of equity by attaching the Exemption to your mortgage (100 + 15 = 115). But since the house has a Fair Market Value of $125K, that still leaves $10K of unprotected equity.

This is basically the same sort of situation we see with regards to motor vehicles. Let’s say you have a car that has a note with a balance of $12,000. And the NADA value of the vehicle is $9,500. In this situation, you owe more than the car is actually worth (which is not at all unusual for a vehicle). Therefore, there is no equity at all (which means that the Bankruptcy Trustee will abandon his / her interest in the item altogether). But let’s say you own this vehicle free and clear of any liens (i.e. the creditor has been paid in full). Now you own a car that has a market value of $9,500. Good for you!! But in the world of bankruptcy, this is not so good. Why? Because you Motor Vehicle Exemption will not cover (i.e. cancel out) that much equity. The Motor Vehicle Exemption covers $3,000 (or you get $6,000 if you file jointly with a spouse). So if you have a car that has $9,500 of value, and we can exempt 3K, that would leave $6,500 of unprotected equity. Again, this would represent a situation in which the Bankruptcy Trustee would start licking his/her chops (because he/she would take the car and sell it).

When we encounter this type of situation, we simply do not file a Missouri Chapter 7 bankruptcy case. Why? Because we will not risk putting your assets in jeopardy. So instead, we either do not file a case, or we talk to our clients about a Chapter 13 bankruptcy. In a St Louis Chapter 13, you don’t have to worry about losing your assets – but if you have a large amount of unsecured debt, then you would have to guarantee the unprotected equity to those creditors. So let’s use the above-mentioned car with a value of $9,500 as an example. If you file a Ch13 (because you don’t want to put the car at risk in a Ch7), we can cancel out 3K of the equity by using the Motor Vehicle Exemption. But the remaining $6,500 of equity would be paid back to your unsecured creditors. So let’s say you have a total of $30,000 in credit cards and medical bills. In the Ch13 scenario we’ve been describing, we would create a repayment plan in which $6,500 of your $30K would get repaid (over the course of three to five years). The rest of the credit card and medical debts (roughly $23,500) would be subject to discharge.

The best way to get a good idea of how all these Exemptions work (and to what assets they can be applied) is to get in touch with us!! We will answer all your questions, describe your full range of options, and get you back on the road towards financial recovery! All you need to do is reach out to us, and we will get started on your case immediately. We look forward to hearing from you!!

At The Bankruptcy Company, we want to make sure that you receive the very best bankruptcy services in all of the St Louis Missouri area. Our team will get you back on your feet, help to dramatically improve your financial standing, and put you in the best position possible for the future. The attorney fees for a standard St Louis MO Chapter 7 are $675, and the upfront fees for a St Louis MO Chapter 13 are $300. But the initial consultation is free of charge!!