It’s Difficult to Find Accurate Information About Bankruptcy

If you’re interested in learning about what bankruptcy law can do for you, your first step may be to search the internet for answers. And you’ll find plenty of information out there. But you have to wonder- is it accurate and reliable?

I come across three very common misconceptions about bankruptcy in my practice located in St. Louis, Missouri, and they’re usually framed as questions or comments like these:

1)      “…I don’t want to include my house (or my car) in my bankruptcy”. Or “…I want to pay my chiropractor so I don’t want to list that debt in my case”.

2)      “If I file for bankruptcy, will they take everything I have?”

3)      “Yes, I’ve told you about everything that I own, but I didn’t list my car because I haven’t titled it in my name yet.”

Does My “Whole Life” Become Part Of The Bankruptcy?

Line number 1 contains comments that I hear often that seem to express two things: First, a person’s wish or expectation – they don’t want the bankruptcy case to impact their home or car, or their medical relationship with theirphysician, dentist, etc. These are important, valid concerns to address when preparing a bankruptcy case.

But secondly, these comments also indicate a misunderstanding about the process.  Under the law, these statements cannot be literally followed. Amongst other requirements, the bankruptcy code and rules require a person seeking bankruptcy relief to listin their “paperwork”called “petition and schedules”, all of their assets and all of their liabilities. You must present your entire financial picture as it stands on the day that you file your case with the bankruptcy court.

It’s very important that you follow these rules if you choose to seek bankruptcy relief so that you don’t find yourself in a worse position than before you filed.

Now, the general purposes behind these requirementsare to determine your eligibility for bankruptcy relief and to determine whether or to what extent your property must be turned over to pay your creditors. (Sidenote: “property” in the chapter 7 context can be any form of property – cash, car, couch… But “property” in the chapter 13 context generally means a monthly monetary payment in lieu of the car or couch.)

Although, you must list these items in your paperwork, that doesn’t necessarily mean that you will lose your home or car, or ruin your relationship with your health care provider. So, how do you keep your car and home if you file for bankruptcy?

That question leads us into the next misconception:

Will I Lose All My Property?

Line number 2 expresses a very legitimate concern – what will you have to give up in order to receive a bankruptcy discharge?

The law offers consumers ways in which to protect property from a creditor’s reach.  These are called exemption laws. There are federal and state exemption laws and in preparing a bankruptcy case, you willuse the exemption lawsthat are applicable to you in order to protect your property, to the extent possible.

So for example, if Missouri bankruptcy law applies to you (this is a legal conclusion – don’t attempt to determine this without competent legal counsel), Missouri requires you to use its state exemption laws in bankruptcy. Missouri allows a debtor – the person who files bankruptcy – to protect $15,000 of equity in their homestead and $3,000 of equity in a vehicle for personal use, among other protections.

So if you own a home worth $150,000 and your mortgage balance is $140,000, you have $10,000 of equity. Under Missouri bankruptcy laws, which allows you to protect $15,000 of equity, bankruptcy may fully protect your home.(But remember, your bankruptcy usually won’t affect your mortgage, so you’ll have to keep paying it to prevent foreclosure.)

If you own a car, free and clear of liens, worth $2,500, Missouri allows you to protect up to $3,000 of equity. So your car is fully protected too.

But what if your car is worth $15,000 and is free and clear of liens? Missouri allows you to protect $3,000 of this equity. But what happens to the other $12,000 of “non-exempt” value? Under this scenario, you may have to turn over your car, and receive the $3,000 back after its sale, so that the rest can go to pay your unsecured creditors. But you may have other options that may allow you to keep your vehicle. Your bankruptcy attorney will help you identify these options after they’ve reviewed all of your facts.

Full Disclosure A Must

The third misconception is related to common understandings of ownership. We know that in bankruptcy you will be expected to list everything that you own, but what if there is no record to prove that you own it. One way to view this comment is that the person making it is taking a very literal approach to their duties – only listing what, “on record”, they own. But the other way to view it – the way in which the Bankruptcy Trustee and Court will view it – is that this person is trying to hide their property. And you never, ever, want to do that.

So, when you’re preparing your case, hopefully with a knowledgeable bankruptcy attorney, you will disclose every item in which you have an interest, whether or not it’s titled in your name or held by another. And then after identifying all of your things, you can begin your list of exemption claims which will help show you what you may keep and what you may have to turn over to your creditors in order to receive a bankruptcy discharge.

Remember, bankruptcy relief, when appropriate, is there to help you resolve your financial trouble, but it won’t allow you to walk away from your debt without going through an obstacle course first.

The information that I discussed above is general information about bankruptcy law.  How the law applies to your life and circumstancesis a completely separate analysis and should only be performed by a competent bankruptcy attorney licensed in your jurisdiction.

If you’re ready to take the next step towards resolving your financial troubles, and you live in the St. Louis Metropolitan area in the State of Missouri, please feel free to contact my office for a free initial consultation.

Nancy Stokley Martin, St. Louis Bankruptcy Attorney