It is a misconception to many that Debtors can file for bankruptcy relief without fear of losing all of their property. Some believe that you must give up all of your assets to creditors when filing bankruptcy. This is not true. Missouri Statute 513.430 affords debtors the opportunity to protect certain assets without fear of surrendering those assets to creditors.
Although Bankruptcy is a Federal protection rather than a State protection, the Missouri legislature has opted out of the Federal Bankruptcy exemptions and instead implemented its own set of exemptions.
The most commonly used exemptions when filing for Chapter 7 Bankruptcy liquidation are the household goods, vehicle, jewelry, homestead, and wildcard exemptions. These exemptions do not amount to a lot of money to some, but they generally do allow most qualified debtors to keep their home, car and household goods and furnishings from creditors.
The household goods exemption is $3000 per debtor filing a Chapter 7 Bankruptcy. The value that is assigned to these goods is the liquidation value. In other words, if you were to hold a garage sale and liquidate all of your belongings, what is the amount of money you would get from that garage sale. It usually would not be much.
The Vehicle exemption is $3000 per debtor for one vehicle. So if a husband and wife are filing a joint bankruptcy they could each claim $3,000 for a total of 2 vehicles. It is important to understand that this is the equity value, not the fair market value of the vehicle. Equity is the difference between what the vehicle is worth and what is owed on the vehicle. (Equity = Value - Debt). If a debtor owes more than the vehicle is worth it is oftentimes not a wise financial choice to keep the vehicle. In that instance the debtor can either reaffirm the vehicle with the lender and continue making payments with the debt, surrender the vehicle to the lender and discharge the remaining debt, or redeem the vehicle at fair market value.
The homestead exemption is used when a debtor owns a home with a mortgage. This exemption is $15,000. And it is a maximum of $15,000 whether it is an individual debtor or husband and wife filing together. If a debtor(s) have more than $15,000 of equity in their home then there is the possibility that a trustee would sell the home, pay off the mortgage, give the debtor their $15,000 exemption and then distribute the remaining balance to creditors.
Cash, bank account balances and Tax Refunds are only protected using using one of two exemptions. The first is the Wild Card Exemption. This is a small $600 per debtor exemption usually used to protect a bank account balance, or sometimes a collectible, such as a gun. The other exemption that is utilized is called the head of household exemption. The head of household exemption is $1,250, plus $350 per dependent in the household. So if a couple files chapter 7 bankruptcy and has 2 children living at home, the maximum amount of cash, bank account balance and tax refund that they could protect is $3,150. ($1,200 (wildcard exemption twice) + $1250 head of household + $700 (dependant).
It is important to note that Social Security Income and Retirement Income is 100% exempt (with a few exceptions for the social security income). So if a debtors only source of income is social security and they have very few assets there may be no need in even file for bankruptcy relief, as the debtor may be "Judgment Proof".
Be sure to discuss exemptions with your bankruptcy lawyer when considering bankruptcy relief. Also, keep in mind that these exemptions are available to anyone, not just bankruptcy debtors. So if you have a Judgement against you, you can still utilize these exemptions to protect certain assets.
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