The Pros and Cons of a St. Louis Bankruptcy

Without a doubt, the best way to thoroughly learn about the differences between a St Louis Chapter 7 and 13 is to set an appointment to come and see us! This would allow for a more personal, one-on-one session during which a free flow of thoughts, ideas, and questions can be bounced back and forth. But for the purposes of this article, I would like to dig deep into the pros and cons that you can expect when filing either chapter of St Louis bankruptcy.

So let’s begin the discussion with the type of bankruptcy that is most often filed in the state of Missouri: a St Louis Chapter 7. And let’s furthermore start with the benefits that will come your way after filing. A Ch7 is described as a “liquidation / discharge” in which your unsecured debts (like credit cards, medical bills, payday loans, overdrawn bank accounts, old utility bills, and collection agencies) are knocked out forever. Once your case is filed (like on that very day), the bankruptcy court will impose what is called an Automatic Stay, which is basically a fancy way of saying that all of your creditors will be prevented from ever trying to collect from you again. This prohibition is pretty broad in scope: no more phone calls, no more nasty letters, no more threats of legal action; all wage garnishments must end, all bank levies must be undone, all pending lawsuits must be withdrawn; foreclosure and repossession proceedings must come to a halt; etc.

After these debts are discharged by the court, your credit score will start to rise pretty quickly. In fact, most people can expect to see their scores climb by about 100-150 points within the first year after filing. You can of course be more aggressive about rebuilding your credit rating if you wish (this is just the average). And then about one-and-a-half years – two years after filing your Ch7, your score will be back up to where you need it to be. So obviously your credit score will not improve dramatically overnight. But it will rise way sooner than you probably think!! And this is really the whole point behind filing such a case. It is a chance for you to wipe the slate clean, dust yourself off, and rebuild (a literal “fresh start / clean slate”).

The length of time that a St Louis Chapter 7 bankruptcy runs is usually around five months (from start to finish). Believe it or not, this is a pretty quick turn around in the legal world!! Not that you are really doing anything during this timeframe. Most of the time is used by the court to process your case through the system. For instance, the court allows all creditors a certain period of time to receive notification of the filing; the Bankruptcy Trustee is allowed his or her time to review all of the documents that we file on your behalf; etc. But in the grand scheme of things, a Ch7 does not take much time at all (from when we file your case until your debts are officially discharged by the court).

So all of this sounds good, right?! How could you possibly go wrong with a Ch7??!! Well, let’s go ahead and discuss the negative aspects of this form of bankruptcy. Although getting your unsecured debts discharged by the court is undoubtedly a good thing, there other half of the equation in a Ch7 is the liquidation that could occur. The basic idea in a Chapter 7 is this: the federal government will absolve you of all the private debt that you incurred (credit cards, medical bills, payday loans, etc.); but if you have an asset that has a lot of value (which you could theoretically sell on your own in order to make good on your debts), the Trustee will sell it to the highest bidder, and disperse the proceeds from that sale to your unsecured creditors. And the court’s definition of an “asset” is pretty broad!! It includes not just your big-ticket items like real estate and motor vehicles; it also encompasses things like bank accounts, personal injury or medical malpractice suits that you have filed, money under the mattress, furniture, appliances, jewelry… you name it!!

Now there is a way in which we can protect all of these items. The government provides certain “Exemptions” that essentially cancel out any equity that may exist on paper (therefore take away any value that the Trustee might otherwise see in the asset). And very often, the Exemptions that we are given cover everything sufficiently. But if you do in fact have a lot of assets, and those assets have significant value, there is a chance that the Ch7 Trustee will demand that those items be turned over to him for liquidation.

The other common bankruptcy that consumers may file in the state of Missouri is a St Louis Chapter 13. This is described as a repayment plan over the course of three (3) to five (5) years during which certain debts are paid back. These debts would typically include: back child / spousal support; outstanding car notes; mortgage arrearage; recent tax debt; and perhaps a portion of your unsecured debts (although we try to make sure that most of your unsecured debts are discharged in a Ch13 too). Most of my clients automatically assume that a Ch13 is somehow worse than a Ch7. That by filing a Chapter 13, they are somehow putting themselves into a difficult position. But in reality, there are a great many benefits that come with a Ch13 that are not available in a Chapter 7.

So again, let’s start with the positive aspects of this chapter of bankruptcy. One of the most appealing aspects of a Ch13 is that it can be utilized in very specific situations that might arise. For instance, if you are facing a foreclosure on your home, but you would like to keep it safe (and continue to live there), filing a Missouri Chapter 13 would stop the foreclosure sale from occurring. We could then put the amount you had fallen behind on (this is called the “mortgage arrearage”) into the Chapter 13 repayment plan (so that you do not have to come up with one lump sum in order to come current). This would allow you to save your house!

Or if your automobile was recently repo’ed, the filing of a Chapter 13 would allow us to get your car back. This would prevent the creditor from reselling it to someone else. The balance owed on the car is then repaid inside the Ch13 plan. But unlike in a Ch7, we also have an opportunity to significantly reduce the amount you owe to the car creditor. For instance, many of my clients have vehicle loans which carry outrageously high rates of interest (sometimes as high as 15, 20, or 25%). As a result, the creditor ends up making a lot of money off of you (in addition to the principal balance). But when a car note is paid through the Ch13 repayment plan, the interest rate drops down to about 5-6%. That usually equates to a tremendous savings right there!

Additionally, we might be able to cram down the balance of the loan down to the actual value of the car. If the purchase date on your vehicle was 910 days or more ago (which works out to be about two and a half years), then we can take advantage of this program. So let’s say you have a 2010 Hyundai Accent, and there is a loan balance of $10,000 owed to the creditor. However, the clean retail value of this kind of car is about $3,500. So in this kind of situation, we could cram down the amount owed from $10,000 to $3,500. Just to be clear, this means that instead of paying off the original loan balance of $10K, you would only have to pay off actual fair market value of the car (which is $3,500). In essence, we would be eliminating $6,500 from your original loan. This remaining $3,500 is also paid off inside your Chapter 13 repayment plan at the lower interest provided by the court. So the end of day, this program provides a tremendous savings!!

What are some of the negative aspects of a Ch13? Well, there is the length of time that it will take (between three and five years). And if you were to lose your main source of income during the repayment period, and fall behind on your monthly payments to the Bankruptcy Trustee, your case could get dismissed. In addition, there is always a chance that some of your unsecured debts would have to be paid back as well (but we of course try to make sure that it is the smallest amount possible). But as I mentioned that beginning of this article, the best way to make a determination as to which chapter of Missouri bankruptcy is right for you would be to set an appointment with us so that I can answer all your questions, and fully describe your options. So please do get in touch with us soon!! 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!!