St. Louis Bankruptcy Lawyers Blog

Most of my Chapter 7 bankruptcy clients owe more money on their cars than what the car is actually worth. This is known as being “upside down” on the vehicle. However, most of my St. Louis bankruptcy clients need to retain their vehicles despite the fact that they are upside down.

Luckily, Chapter 7 bankruptcy offers a solution. Section 722 of the Bankruptcy Code provides that a debtor can redeem secured collateral for an amount equal to the secured portion of the loan. What this means, is that if you have a car that is worth $6000.00, subject to a $20,000.00 loan, the secured portion of the loan is only $6000.00. The remaining $14,000.00 balance is unsecured. Chapter 7 bankruptcy will allow you to redeem the vehicle for $6000.00.

Sounds great, right? So what’s the catch? Upon receiving a court order of redemption, the Chapter 7 debtor must be able to immediately pay the creditor the value of the vehicle in a lump sum. Obviously, this is an issue for most debtors since they are filing bankruptcy due to financial constraints. Not surprisingly, several companies have emerged which provide redemption loans to debtors. The downside to these loans is that the interest rate is often very high. However, a reputable redemption loan company can give you a detailed analysis of your options. Even with a higher interest rate, many Chapter 7 debtors find that they have lower monthly plan payments.

The following is an approximate timeline of for a straight-forward, no-asset, Chapter 7 bankruptcy case.

1. Meet with an experienced St. Louis bankruptcy lawyer for a free consultation to discuss your situation. Be prepared to discuss your income, debts, and assets.

2. Hire a competent St. Louis chapter 7 lawyer and prepare the documents necessary for your case to be filed. You will likely need to fill out a packet of information regarding your assets, debts, and financial situation over the past few years. You will need to provide proof of income for the six months prior to filing, as well as tax returns, and other financial statements.

There is essentially no limit on how often an individual can file for bankruptcy. The real issue is that there is a limit to how often someone can receive a bankruptcy discharge, which is the reason many people file for bankruptcy. A discharge is when the bankruptcy court wipes out your debt, meaning you are no longer responsible for paying it. Below are the rules regarding how often someone can receive a St. Louis Chapter 7 or St. Louis Chapter 13 bankruptcy discharge:

• Once you receive a Chapter 7 discharge, you must wait 8 years before you are eligible for another Chapter 7 discharge. – (11 U.S.C. 727(a)(8))

• There must be two years between Chapter 13 discharges. -(11 U.S.C. 1328(f)(2))

• There must be four years between a Chapter 7 and Chapter 13 discharge -(11 U.S.C. 1328(f)(1))

• You must wait 6 years after receiving a Chapter 13 discharge to receive a discharge in a Chapter 7 (if under 70% of unsecured claims were paid in the Chapter 13). -(11 U.S.C. 727(a)(9))

A discharge is not the only reason to file for bankruptcy protection, however. Some individuals may file a Chapter 13 bankruptcy in order to stop a foreclosure sale or repossession regardless of whether they are entitled to receive a discharge at the end of the case. There can be a variety of reasons to file for Chapter 13 bankruptcy relief, since Chapter 13 offers powerful protection to debtors while allowing them the opportunity to repay debts, assuming they have not abused the bankruptcy process in the past.
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It’s not unusual for an individual who is suffering from financial hardship to fall behind on payments to his creditors. For instance, if you miss a payment on a credit card debt, the company will most likely call you the next day asking for money or if you don’t pay on a doctor’s bill, the medical office will start sending letters. Likewise, when you are unable to make a car payment, the creditor will threaten repossession.

To begin with, the reason why a car creditor has the right to repossess your automobile is because it is a ‘secured’ debt. What makes it secured (as opposed to ‘unsecured’) is that there is underlying collateral (i.e. the car). This means that if you stop making payments, the creditor is allowed to come and take back (or ‘repossess’) the collateral.
So what happens once the car is repossessed? Well, if the goal is to get the car back, one route you could take is filing a St. Louis Chapter 13 bankruptcy. When such a case is filed, the creditor is ordered to give back possession of the car to you. And while you are inside the Chapter 13 payment plan, you’ll have the chance to make monthly payments on the car through a Trustee (usually with a much lower interest rate).

But there is a catch: Once the car is repossessed, you’ll only have a limited period of time before the creditor will sell it, and once it is sold, the chances of getting it back are extraordinarily slim. Typically, you will have between ten and twenty days after the repossession to get the bankruptcy petition filed and take back possession of the car.
Of course, if the car is repossessed and you are unable to file a case before the creditor sells it, the creditor will undoubtedly come after you for the deficiency on the loan. A loan deficiency occurs when the creditor sells the repossessed car after the 10 to 20 day period, but is not able to sell the vehicle to cover the balance of the existing loan. So for instance, let’s say that you owed $10,000 on your car when it was repossessed. And the creditor sells the car, but is only able to get $5,000 for it. This in turn means that a deficiency of $5,000 (the difference between the loan balance and the amount it actually sold for) is created, and the creditor can demand that you cover that deficiency. In this type of situation, it might be better to look at a St. Louis Chapter 7 bankruptcy, in which all unsecured debts are discharged (because the deficiency you owe on the repossessed car is now considered ‘unsecured,’ since there is no longer any collateral).
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Congratulations! You have received your bankruptcy discharge. Your debts have been wiped out and you are on your way to a fresh start. Still, your work is not over yet.

I always tell my St. Louis bankruptcy clients to obtain a copy of their credit reports within two months after receiving their bankruptcy discharge. Federal law entitled you to a free copy of your credit report every twelve months from the three main credit reporting agencies. You can get your free credit report by going to annualcreditreport.com.

You will want to get a copy of the report from each of the big three agencies. After receiving the credit reports, check them carefully for errors. Any debt discharged by your Chapter 7 bankruptcy or Chapter 13 bankruptcy should be listed as “discharged” and should show a zero balance. There should not be any negative reporting showing up post filing, meaning the date you filed your bankruptcy case. Additionally, any debt on which you reaffirmed should still be getting reported to the bureaus. This is important because you want your on-time payments to be reported so that you can rebuilt your credit post bankruptcy.

My St. Louis bankruptcy clients often file Chapter 13 bankruptcies in order to save their house from foreclosure. Other times, individuals files Chapter 13 bankruptcy because their household income is above the median income for their family size. For instance, if you are a household of one and make over one hundred thousand dollars a year, you make more than the median income and make too much to file for Chapter 7 bankruptcy relief.

For purposes of this article, let’s say you are in the first category, and are someone who is trying to save their house from a foreclosure. You and your wife bring in a total of $53,000 per year. In this situation, you would probably file a Chapter 13 to stop the foreclosure, but you would be below the median income level (which means you could have filed a Chapter 7 instead).

I have had several clients in the past who fit this set of circumstances. They are below the median income for their household size and would normally be a straightforward Chapter 7, but for the fact that they wish to keep the home. After being in the Chapter 13 for a while, they find it difficult to make payments to both the Trustee and the mortgage company. At that point, they might wish to go ahead and surrender the house and convert to a Chapter 7.

What makes it easy to convert to a Chapter 7 from a Chapter 13 is the fact that the client was from the very beginning a below median income household (meaning, they could have been a Chapter 7 filing from the start). You don’t lose that status, even though you filed a Chapter 13 first.

A more complicated scenario arises when someone files a Missouri Chapter 13 because they are above the median income level for their household size and can afford a repayment to their creditors. Then after being in the Chapter 13 for a while, the Debtor loses his or her job or their income is otherwise drastically been reduced. In such a scenario, there is a possibility of converting from a Chapter 13 to a Chapter 7 in light of these new facts. if documentation can be provided showing the loss of income, then a conversion can usually still be managed.
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My St. Louis bankruptcy clients often question whether it is better to file for St. Louis Chapter 7 or simply negotiate a settlement of their credit card debt. In this economy, it is not unusual to see credit card companies offer settlements on the debts you owe them. The idea behind this kind of offer is pretty straightforward: You owe a large sum of money to the creditor; they recognize that you are having difficulty paying the monthly amount and have fallen behind as a result; they figure that if they offer a lower amount in lieu of the current balance, you will jump at the deal.

Sounds good, right? Well, let’s take a closer look at the proposition. For example, assume you have a credit card balance of $10,000.00, and your monthly minimum payments are $445. You are having trouble making ends meet, so you stop paying on it. They credit card company calls you every single day, multiple times per day, for the next several months in an attempt to collect, but you are simply unable to make a payment to them while putting food on the table for your family. Finally, the creditor calls you one day and says that they want to propose a settlement. Instead of you paying $10,000.00, they will accept $5,000.00 and write off the other half.

Your ears perk up, you sit up straight in your chair, and you tell them that you probably would be interested in something like that. But the next thing you learn brings you back to Earth. They explain that since they are offering this one time settlement, they can no longer accept monthly payments. Oh and if you want to accept their offer, they need the entire lump sum of $5,000 by Friday afternoon.

Once that dream is shattered, you sit back in your chair and rub your forehead and wonder, “If I can’t make a $445.00 monthly payment, how in the world am I supposed to give these guys $5,000.00 by the end of the week?!” You explain this dilemma to them, but the only thing you get in response is a glowing description of how nice they are for making the offer in the first place.

Most people do not have an extra $5,000.00 lying around the house. If you did, wouldn’t you have been making the minimum payment all along? This is the kind of ‘settlement’ that they offer.
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There is a fair amount of paperwork that needs to be filled out in order to properly file a Chapter 7 or Chapter 13 bankruptcy petition. The best way to make sure that your paperwork is properly prepared and filed, is to work with an experienced St. Louis bankruptcy lawyer.

The court is interested in your complete financial status. They want to know all about your current employment or other sources of income. They want to know all about your assets, personal property, debts, and other obligations. Other areas of interest involve where you spend your money, charitable donations, tax burdens, creditor information, and whether or not you have sold or given away anything in the last two years.

Let’s take for example your creditors: The law states very clearly that all of your creditors have a right to be notified upon the filing of your bankruptcy petition. In order to satisfy this rule, your Missouri bankruptcy attorney will undoubtedly run a credit report for you, which will in turn provide a history of your creditors and debts that are currently owed. However, not all of your debts may show up on the credit history report. Sometimes the creditors assembled on the report represent only a partial listing of the debts that you actually owe. Some creditors simply do not report the debt to the credit bureau (frequent examples of such creditors include hospitals and doctor’s offices). So even if you run the three big credit reporters, those debts will not be listed. As a result, most bankruptcy attorneys will ask that you write out all of your creditors by name, and include the amount owed, account number, and mailing address. This way, there is a much greater likelihood that all of your creditors will receive proper notification.

Another example would be the valuation of your personal goods. Unless you are really good friends with your bankruptcy attorney, and he/she is a frequent guest in your home, the attorney is most likely not going to know what sort of personal property you own or the value of said property. The court requires that you provide a value (usually ‘garage sale value’) for all personal property, so as to get a sense of your other assets. Unless your attorney has access to this valuation, he/she cannot exempt the property so as to ensure that you keep it.

All of this information resides with you. Which means in order for your attorney to successfully file your case, he/she will need you to fill out some paperwork that will provide him/her with the necessary information. It’s a lot of busy work, but if you can commit an entire afternoon to the project, you should be able to have it completely within a few hours.

In addition, the court requires that you disclose certain pieces of information in documented form. For instance, the court will want to know about all sources of household income for the six months prior to filing for bankruptcy. The best documented proof of this income is in the form of pay stubs (sometimes called ‘pay advices’) from your employer which shows things like gross income, deductions, certain exemptions, and net income. Once your bankruptcy attorney has these documents, he/she can enter it into the so-called ‘Means Test’ calculation (the formula which ultimately determines whether you qualify for a bankruptcy filing).
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This is a frequently asked question by many of my St. Louis bankruptcy clients, which makes sense. Filing a Chapter 7 bankruptcy is a much easier route than that of a Chapter 13 bankruptcy. The length of time is much shorter, the expense much smaller, and the discharge from debts is received much more quickly. So if a Chapter 7 bankruptcy is the easier path, then how do you know if it is right for you?

Well, the most straightforward way to answer that question is to begin with a discussion about whether you qualify for a St. Louis Chapter 7 bankruptcy. According to the standards set by the state and federal governments, there are certain median income levels for each household. For example, the median income for a household of one in the state of Missouri is: $39,332.00. If your income far exceeds this amount, then there is a good chance that you will not qualify for a Chapter 7 bankruptcy. However, if your household income is near or below that level, a Chapter 7 would most likely be something for which you would qualify.

There really isn’t a ‘typical’ Chapter 7 client, but if there were, he or she would look something like this: large amounts of unsecured debt (credit cards, medical bills, payday loans, utility bills, etc.); rents an apartment, and does not own real estate; owns an older car; not much, if any, tax debt; and has not filed bankruptcy before.

Does that mean that unless the individual fits into the criteria described above that they cannot file a Chapter 7 bankruptcy? Of course not. That’s why it’s important to understand that there are several different scenarios under which a person can file for bankruptcy. There is not ‘fixed’ model. The St. Louis Chapter 7 bankruptcy attorneys at The Bankruptcy Company have filed Chapter 7 bankruptcies for people who are above the median income level (because there are mechanisms that good bankruptcy lawyers can be used to decrease the amount of disposable income that appears in the forms that are filed with the court), who have multiple pieces of real estate (because in this market, it is rare to find a home with any equity at all), own brand new cars (because the car creditor undoubtedly has a large note secured against it anyway), and have thousands in unsecured debts.

Each case is independent of every other one, and every person’s situation is different. However, the threshold question, the one that can make or break, is whether you are above or below the median income level for your particular household size.
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As a St. Louis bankruptcy attorney, the question I am asked the most is, “How much does it cost to file bankruptcy?” When you are in dire financial straits, you don’t normally have a lot of extra cash laying around. The creditors are hounding you for a payment, you are struggling to keep the lights on, and then there is that minor thing about having to eat everyday. When money is tight, money is tight.

But let’s put this into perspective: Say you have approximately $20,000.00 in credit card debt; another $4,000.00 in medical bills; some outstanding payday loans in the amount of $1,500.00; and that car company is still after you for the deficiency on a repossession from last year of $14,000.00. As you can see, the debts can start to add up quickly. And this isn’t including things like penalties, interest, fines, and all the creditor’s attorney fees.

At this point, you begin looking into filing for bankruptcy. Let’s say that the average fees for a Chapter 7 bankruptcy is $1,000.00 (although our St. Louis Chapter 7 bankruptcy lawyers charge $700.00). If the total amount of debt that you owe to your creditors is somewhere in the range of $50,000.00, then it really comes down to a cost/benefit analysis. In other words, is it worth paying an attorney $1,000.00 to file a St. Louis Chapter 7 or St. Louis Chapter 13 so that you can get debt relief to the tune of $50,000.00. The benefit is clear.

Also keep in mind that the fees do not have to be paid all at once. Most bankruptcy attorneys will allow you to make payments over time, so that you can spread things out a bit. For instance, if you are paid bi-weekly at your job, you could pay a portion of the fees with every paycheck that you receive. Before you know it, you’ll be paid in full, and the case can be filed.

Ultimately, the goal of the bankruptcy is to discharge all the unsecured debt that you are carrying around. Once that debt is discharged, it is gone forever, and the creditor can never hassle you again. For most people, paying an attorney to make sure that happens is worth the fees he/she charges, because once your case is complete, you will have a fresh start / clean slate, and a chance to head in a new direction in life.
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