If you live in Missouri, it might be difficult right now to get Debt Relief by filing a Chapter 7 bankruptcy because you might have too much equity in your home. In Missouri, a debtor can exempt only up to $15,000 of the equity in his/her home when he/she files for bankruptcy. So, for example, if your home is worth $200,000 right now but there is only $125,000 left to pay on the mortgage then there is $75,000 equity ($200,000 minus $125,000).
You would be allowed your $15,000 home equity exemption and then closing costs of $14,000 (usually 7% of the sale price) would be deducted and thus there would be net equity of $46,000 ($75,000 equity minus $15,000 home equity exemption minus $14,000 closing costs). That is a significant amount that would be available to pay to your unsecured creditors in Chapter 7. So, if you wanted to keep your house in Missouri, you would not want to file for Chapter 7.
There is an exemption called Tenancy by the Entireties which is available for a married couple that could exempt all the equity in a home, but to apply for that exemption the home must have been purchased by the husband and wife while they were married (both must be on the warranty deed issued to them at the time of purchase) and they must have completely separate unsecured debt (e.g., credit cards and medical bills).
You can see that in today’s real estate market that it would be challenging for many people to keep their homes if they filed for Chapter 7 bankruptcy.
What about Filing a Chapter 13?
If a Chapter 7 bankruptcy is not possible because of the equity in the home, the debtor might consider a Chapter 13 bankruptcy instead.
In Chapter 13, the debtor keeps his/her home but must pay to his/her unsecured creditors at least what those creditors would have received if the home was liquidated in Chapter 7.
So, going back to our scenario from earlier, the debtor would need to propose a payment plan over five years that would pay at least $46,000 to the unsecured creditors.
That’s a lot of money to have to pay over five years and so the monthly payment in Chapter 13 might be more than the debtor can actually afford to pay.
This is the dilemma many debtors find themselves in right now. Either losing their home if they file for Chapter 7 or not being able to afford the required monthly payment in Chapter 13 so they can keep their home.
What Else Can I Do?
If neither Chapter 7 nor Chapter 13 are available, there are other options to go over with an experienced attorney and they all depend on your situation. Options such as a debt relief settlement might be a solution. Here are some other options:
- Don’t do anything and wait to see if creditors start to obtain judgments from which they can garnish wages and/or bank accounts.
- Try to settle away or get on a payment plan with each individual creditor. We can try to help you settle away debts and sometimes that’s a feasible and reasonable option.
- Wait until the housing values do back down and then either try a
Chapter 7 or a Chapter 13 at that time. - Sell the house, and pay off the debt.
- Maybe look into a consolidation loan for a lower monthly overall payment to pay off debt.
- See if a home equity line of credit or second mortgage can be obtained to pay off the unsecured creditors and hopefully have a lower monthly payment on that loan versus the cumulative payments on the unsecured debts.
Options for Debt Relief in Missouri
Speak with one of our experienced attorneys for more information about what your options are if neither a Chapter 7 nor a Chapter 13 is currently the best for you. We specialize in debt relief and we will work with you to find the best option for debt relief for you. For more information visit our web at: www.Kansascitybankruptcy.com. WM Law is Here to Help!
