BARO LAW FIRM

1605 N HWY 67

FLORISSANT, MO 63031

TEL: (314) 896-1999

FAX: (314) 942-7195

GENERAL EMAIL: abaro@barolawfirm.com

 

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CHAPTER 7 BANKRUPTCY

          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 file and discharge the debts that you can discharge - you don't pay any of those debts back, you walk away from your debts and you are done.  A discharge is a court order that says that the debts you had when you filed bankruptcy are no longer legally collectable. 

       

           So what debts can you discharge and simply walk away from in a chapter 7?  CHAPTER 7 BANKRUPTCY ALLOWS YOU TO DISCHARGE ALL OF YOUR UNSECURED, NON-PRIORITY DEBTS.  We often get the question: what debts may be included in my bankruptcy?  Although this question has some technical issues, the short answer is: all of your unsecured, and non-priority debts that can be discharged must be included in your bankruptcy, you don't get to pick or choose.

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. 

          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 and may be discharged as well.

If you want to keep your collateral you must keep paying for it, period.  When you file a chapter 7 bankruptcy, assuming you are current on the loan payments, it is your option to either keep your collateral and keep making the payments, OR stop making the payments, discharge the deficiency balance owed, and offer to surrender the collateral to the lender.  

 

PRIORITY DEBT

          Priority debt is debt that the Bankruptcy Court deems important enough that you are not allowed to discharge it, you must remain liable on it and pay it back.  When you file a chapter 7 bankruptcy priority debts are not discharged, they remain in place and you remain liable.

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.

 

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, such as transferring your assets to your friends or family.

 

DISCHARGEABLE DEBTS IN CHAPTER 7 BANKRUPTCY

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

  • CREDIT CARDS, CHARGE CARDS, & LINES OF CREDIT

  • HOSPITAL BILLS & MEDICAL DEBT

  • 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 must 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 must have been FILED at least 2 years prior to the bankruptcy filing date.

    3. And the tax liability must have been ASSESSED at least 240 days prior to the bankruptcy filing date

    • For example, if your taxes are due each year on April 15th, and you never file extensions, then the most recent year of income taxes eligible for discharge is 2015.  In this example 2016 taxes will be eligible for discharge on April 15, 2020. 

    • Relevant dates can be found by obtaining tax transcripts free online 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 prior to consulting with an attorney.  If you need transcripts faster you can 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 on the bankruptcy filing date. 

    • For example, if you file bankruptcy in 2019, before the 2019 personal property taxes have become due, then you may discharge your personal property tax liabilities for all years except for 2018 and 2019.  If you file bankruptcy in 2019, after the 2019 personal property taxes have become due, then you may discharge your personal property tax liabilities for all years except for 2019.

  • 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 ultimately 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 charge as part our standard bankruptcy services.

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

  • MSD BILLS WHEN THE REAL ESTATE IS NO LONGER OWNED

    • Note that a ​bill that resulted in a lawsuit may have become a lien, which is different.

 

NON-DISCHARGEABLE DEBTS

Debts you cannot discharge in chapter 7 bankruptcy include:

  • SECURED DEBTS

    • WHEN YOU FILE A CHAPTER 7 BANKRUPTCY YOU MUST BE CURRENT ON ALL LOANS ON COLLATERAL THAT YOU WANT TO KEEP, SUCH AS YOUR HOUSE OR CAR​!

    • You also must continue making the regular payments on secured debts after filing bankruptcy!

  • 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 A HOME

    • 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 own or 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).

    • 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 own 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.

  • SECURED DEBT

    • If you want to keep the collateral - whether it's your house, your car, your furniture, etc. - you must keep paying for it, 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.

  • 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.

WHAT HAPPENS TO 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 courts.  Once you receive your discharge your creditors may resume attempting to collect debts that were not discharged, such as resuming garnishments on student loans and taxes.  

          If you have a debt that will not be discharged in a chapter 7 bankruptcy, then that may be a good reason to file a chapter 13 bankruptcy instead, and allow yourself 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!).   

 

WHY IS CHAPTER 7 BANKRUPTCY COMMONLY REFERRED TO AS A "LIQUIDATION BANKRUPTCY?"

          Chapter 7 bankruptcy is often referred to as a liquidation bankruptcy because everyone who files is only allowed to own certain assets, and only allowed to have a certain amount of equity in those assets.  Assets are anything you own, and anything you are owed.  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 than what is owed on it.

 

          The assets you are allowed to own when you file a chapter 7 bankruptcy are called exempt assets. The Court cannot touch your exempt assets for any reason.   The idea of chapter 7 bankruptcy is that any asset that you own that is not exempt is at risk of being taken from you by the Court and liquidated, meaning sold, with the proceeds used to pay your creditors.   If you have too much equity in any one asset, such as your house or car, that asset may be at risk of liquidation as well.

 

          This sounds alarming, but what does it really mean?   For most people who file chapter 7 bankruptcy the risk of liquidation does not affect them because they do not own enough assets or have enough equity in assets.  For some it means that if you own an asset that you may be at risk of losing you should not file a chapter 7 bankruptcy unless you are ok with either losing it by liquidation, or paying an amount of money to the Court equal to the amount that the court would receive if it was liquidated in order to keep it. This would mean paying additional money to the Court on top of your filing fee and attorney fee, which most chapter 7 filers do not have!   In practice this is never a concern - we would never allow someone to file a chapter 7 bankruptcy if they are at risk of losing any assets, unless they are fully aware and accept the risk!   

 

          THE RISK OF LOSING YOUR ASSETS THROUGH LIQUIDATION IN CHAPTER 7 BANKRUPTCY IS ALMOST NEVER A REAL ISSUE IN PRACTICE BECAUSE PROTECTING ASSETS IS ONE OF THE MAIN REASONS TO FILE A CHAPTER 13 BANKRUPTCY!   Chapter 13 allows you to keep more assets, but in exchange you must pay something back to your creditors in order to receive your discharge, you do not simply walk away from your unsecured debts like in chapter 7. 

 

         We will add an exemption discussion to our bankruptcy page shortly!

 

        This page is currently under construction.  Call for more info! (314) 896-1999      

 

 

            

LAW OFFICES OF KIMBER H. BARO - EXPERIENCED ST. LOUIS BANKRUPTCY ATTORNEYS - CHAPTER 7 & 13

LOCATED IN FLORISSANT - SERVICING ALL OF ST. LOUIS, ST. CHARLES & JEFFERSON COUNTY