Chapter 7 bankruptcy is the type of bankruptcy most people think of when they think of bankruptcy. Chapter 7 is the quickest and easiest type of bankruptcy where you simply discharge the debts that you can discharge and you are done.  You don't pay any debts back.  You are left with debts that cannot be discharged, such as student loans, which can be collected once the bankruptcy is complete.  Chapter 7 however is not available to every person.  The main qualifiers are income and assets.  To qualify for chapter 7 you cannot earn more than the median gross income for your household size in the state of Missouri.  You should also be conscious of whether you have assets that could be liquidated if you filed a chapter 7.

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INCOME LIMITS

The current income limits for chapter 7, updated as of November 1, 2023, are:

          Household of 1 - $57,248

          Household of 2 - $73,751

          Household of 3 - $87,722

          Household of 4 - $101,726

          *Add $9,900  for each additional person in the household (ex. 5 = $111,726).

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          These numbers can be found on a  chart  issued by the United States Trustee's Office, based on the Census Bureau's Median Income Data, updated every 5-6 months, which may be found here on the Department of Justice's website.  Household size and household income are determinations a lawyer should make.  If you are over the gross income limit then your only bankruptcy option would be a chapter 13.

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ASSET LIMITS

          Everyone who files a chapter 7 bankruptcy is only allowed to own certain assets, and only allowed to have a certain amount of equity in those assets.  An asset is anything you own, and anything owed to you other than a smile.  Equity is the difference between what an asset is worth, and what is owed on it.  An asset has equity if it is worth more or could be sold for more than what is owed on it.

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          When you file a bankruptcy you must disclose all of your assets.  Each state has their own list of assets that you are allowed to own and file a chapter 7 without risk of liquidation.  If you own more than what you are allowed on the list, or if you have too much equity in an asset, the court's position is you should sell that asset and use the money to pay your creditors and then file a chapter 7, or file now and let the court liquidate the asset for you and give the money to your creditors (which is why chapter 7 is referred to as a liquidation bankruptcy), or file now and pay extra to keep the asset instead of selling it.  You can either pay extra up front to keep it which would mean paying additional money to the court on top of your filing fee and attorney fee, which most chapter 7 filers are not in a position to do, or pay that extra amount over time but through a chapter 13 bankruptcy instead (so in practice liquidation is never really a concern).  Chapter 13 allows you to own more assets, but in exchange you must pay to your creditors what you would have received if you sold the asset before receiving your discharge. 

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          This list of allowed assets and equity in assets is referred to as the exemptions.  The list of asset exemptions is state-by-state, and Missouri's exemptions are terribly outdated unfortunately!  The main exemptions to be aware of are $15,000 for your home, and $3,000.00 for your vehicle.  Other than guns and wedding rings Missouri really does not allow you to have very much when you file a chapter 7.  The idea of exemptions is that if you file a bankruptcy the court believes you should be left with only what you need to start over, but in this economy with this inflation the current exemptions are really not enough.  An actual list of exemptions would be long and complicated, but feel free to call if you have any questions about exemptions or exempt assets!

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DISCHARGEABLE DEBTS IN CHAPTER 7 BANKRUPTCY

Unsecured, non-priority debts that are dischargeable in chapter 7 bankruptcy include:

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• CREDIT CARDS, CHARGE CARDS, & LINES OF CREDIT

• MEDICAL DEBT & HOSPITAL BILLS

• UNSECURED LOANS, PERSONAL LOANS, & PAYDAY LOANS

• DEFICIENCY BALANCE OWED AFTER A REPOSSESSION OR VOLUNTARY SURRENDER

• DEBT RESULTING FROM A RECENT OR UPCOMING FORECLOSURE (1099-C TAX DEBT)

• INCOME TAXES MORE THAN THREE YEARS OLD - meeting the following criteria​:​​​

  1. The taxes have been DUE for 3 years prior to the bankruptcy filing date (due dates are usually April 15, extensions extend the due dates).

  2. The taxes were FILED at least 2 years ago.

  3. The taxes were not ASSESSED in the last 240 days.​

     • Relevant dates can be found by obtaining tax transcripts which you can order for free at www.irs.gov.  If you have questions about the dischargeability of your debts we suggest you obtain tax transcripts for each year in question.  If you need transcripts faster you can call or go down to the IRS building at 1222 Spruce St, St. Louis, MO 63103.   ​

• PERSONAL PROPERTY TAXES OVER ONE YEAR OLD

  • All years of personal property taxes are dischargeable except for the most recent year currently due as of the bankruptcy filing date. 

  • For example, if you file a bankruptcy in 2023, then you may discharge your personal property tax liabilities for all years except for 2022.  You will be billed for 2023 at the end of the year as well.

• CERTAIN TYPES OF JUDGMENT LIENS

  • Depending on the equity you have in your home, certain types of judgment liens (judicial liens) resulting from lawsuits may be avoided and discharged in bankruptcy.  This is done through what is called an Adversary Proceeding in the bankruptcy court.  We are one of the only law firms in St. Louis that files adversary proceedings at no additional charge as part our standard bankruptcy services.

• MOTOR VEHICLE SALES TAXES OVER 3 YEARS OLD, AND WHEN THE VEHICLE IS NO LONGER POSSESSED

• MSD BILLS WHEN THE REAL ESTATE IS NO LONGER OWNED

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NON-DISCHARGEABLE DEBTS IN CHAPTER 7 BANKRUPTCY

Debts you cannot discharge in chapter 7 bankruptcy include:

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• SECURED DEBTS

  • If you want to keep the collateral - whether it's your house, your car, your furniture, etc. - you must keep paying for it after the bankruptcy is filed, no matter what type of bankruptcy you file.  

  • If you file a chapter 7 bankruptcy you must be CURRENT on the loan payments on any collateral you want to keep! 

  • If you are behind on the loan payments on collateral that you want to keep, then you would only be able to file a chapter 13 bankruptcy.  Delinquency on car loans and home loans is one of the most common reasons people file chapter 13 bankruptcy, because a chapter 13 essentially allows you to treat your loans as current and make up the delinquencies over time.

• STUDENT LOANS  

  • Student loans are in practice NOT dischargeable in bankruptcy.  No matter what type of bankruptcy you file your student loans will survive.  Hopefully the law changes in the future!  The only temporary relief you get is that student loans go into deferment during a bankruptcy, meaning you are not required to make student loan payments while in bankruptcy - but the interest will continue to accrue!

• CHILD SUPPORT   

• ALIMONY & MAINTENANCE

• INCOME TAXES LESS THAN 3 YEARS OLD

• REAL ESTATE TAXES

• TAXES THAT ARE NOT DUE YET

• MSD BILLS WHEN YOU OWN THE REAL ESTATE

  • If you own a home then you cannot discharge your debt with Metropolitan St. Louis Sewer District (MSD) -  it is considered a lien on your home.

• MOTOR VEHICLE SALES TAXES ON VEHICLES YOU OWN, AND MOTOR VEHICLE TAXES LESS THAN THREE YEARS OLD

  • In a chapter 7 bankruptcy you must have paid the sales taxes on any vehicle you wish to keep.  So if you have recently purchased a car you will have to pay the sales taxes before you can file a chapter 7 bankruptcy (please note chapter 13 bankruptcy is different and will allow you to pay sales taxes over time).  You do not own your vehicle until the sales taxes are paid!  If you file a bankruptcy and sales taxes have not been paid the court will own the vehicle and will liquidate it.

  • Otherwise motor vehicle sales taxes in general are only dischargeable if they have been DUE for 3 years prior to the bankruptcy filing date, and you no longer have the vehicle.

• CRIMINAL RESTITUTION

  • Money owed as "restitution" as a result of a criminal conviction or an equivalent civil conviction is not dischargeable.  In fact, bankruptcy will not help provide relief of any sort with this type of debt  - if you are being garnished for this type of debt bankruptcy will not stop it because the Automatic Stay does not apply.  

• CERTAIN TYPES OF LIENS

  • Certain types of liens and judgment liens cannot be avoided and discharged in chapter 7.  Such as tax liens, MSD sewer liens, Homeowner's Association fees.  These liens must be paid back, and are therefore usually addressed by instead filing a chapter 13 bankruptcy payback plan bankruptcy and paying them back over time.

• FRAUDULENT DEBT

  • The Court has measures to avoid taking advantage of the system when filing bankruptcy.  The Court may see certain actions as done in bad faith, such as acquiring certain debts prior to filing, or transferring certain assets prior to filing, and may punish you by making you pay those debts, or reverse asset transfers and make you surrender assets to be sold.

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THE TYPES OF NON-DISCHARGEABLE DEBTS - SECURED DEBTS, PRIORITY DEBTS, & UNSECURED, NON-PRIORITY DEBTS

       

SECURED DEBT

          Secured debt is debt that is backed by your property as collateral that can be taken from you if payments are not made.  For example, a mortgage is a secured debt because it is backed by your home as collateral, and the mortgage company may foreclose if payments are not made.  Other secured debts include motor vehicles and rent-to-own furniture, both of which may be repossessed if payments are not made. 

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          If the collateral has already been repossessed or voluntarily surrendered back to the creditor, or if you plan on surrendering the collateral when you file bankruptcy, then the remaining deficiency balance owed on the collateral is unsecured since the collateral is gone, and may be discharged.  

 

          IF YOU WANT TO KEEP YOUR COLLATERAL YOU MUST KEEP PAYING FOR IT!  When you file a chapter 7 bankruptcy it is your OPTION to either keep your collateral and keep making the payments, or stop making the payments, surrender the collateral to the lender, and discharge the deficiency balance.  In a chapter 7 bankruptcy you only have the option to keep your collateral if you are current on the loan payments on the collateral, otherwise it must be surrendered.  Understand that bankruptcy may remove your personal liability to pay a debt, but bankruptcy does not remove security interests attached to collateral - if the debt is not paid you may not be liable to pay money, but the collateral can still be taken.  If you are behind on payments on collateral that you want to keep, then you file a chapter 13 bankruptcy which allows you to treat the loan as current and make up the delinquency over time.

 

PRIORITY DEBT

          Priority debt is debt that the Bankruptcy Court deems important enough that you are not allowed to discharge it, you remain liable on it.  When you file a chapter 7 bankruptcy priority debts are not discharged, they remain in place and you remain liable.  Creditors who hold this type of debt are referred to as priority creditors.

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UNSECURED, NON-PRIORITY DEBT 

          Unsecured, non-priority debt is debt that is not backed by collateral, and is also not granted priority status.  These are the debts that are discharged when you file a chapter 7 bankruptcy.  This type of debt is also referred to as general unsecured debt.  Creditors who hold this type of debt are referred to as general unsecured creditors.

 

EXCEPTIONS TO THE RULES

           Exceptions to the general rules also exist, meaning that certain unsecured, non-priority debts are still non-dischargeable.  The best example is student loans.  Student loans are, realistically, not dischargeable.   Student loans are in fact next to impossible to discharge under the current bankruptcy laws - they require a special hardship discharge that is extremely difficult to receive.  Understand that no matter what type of bankruptcy you file you will remain liable on your student loans, and most likely you will be taking them to the grave.  Another exception to discharge is debt resulting from fraudulent acts.  You can never walk away from any debt resulting from a fraudulent act, including fraud in preparing to file a bankruptcy.

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WHAT HAPPENS TO THE DEBT THAT IS NON-DISCHARGEABLE?

          In chapter 7 bankruptcy you discharge your general unsecured debts, and what remains is the secured and priority debt that you cannot discharge.   There is no payback of debts in chapter 7 bankruptcy.   After discharge you are simply left owing the non-dischargeable debt, which you will have to work on paying back on your own, outside of court.  Once you receive your discharge the automatic stay ends, and your creditors may resume attempting to collect debts that were not discharged, such as resuming garnishments on student loans and taxes.  

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          If you have a debt that will not be discharged in a chapter 7 bankruptcy, that may be a good reason to file a chapter 13 bankruptcy instead, and allow yourself more time to pay it back (see our chapter 13 discussion - the payback requirements in chapter 13 are commonly misunderstood and you should not necessarily be discouraged by the idea of a "payback plan bankruptcy" as chapter 13 bankruptcy is often referred, it does not mean you pay back all of your debts!).   

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          Call (314) 896-1999 to set up a free appointment to discuss your bankruptcy options!

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