Qualifying for a St. Louis Chapter 7 Bankruptcy

When I meet with most of my clients for the first time, almost all of them have previously heard (in one way or another) of a St Louis Chapter 7 bankruptcy. But most folks are not aware of how someone actually qualifies for such a thing. In fact, there seems to be a general assumption among most Americans that if they have certain debt levels, they should automatically be entitled to discharge of their debts. But the Bankruptcy Code has installed certain qualifying criteria that you must pass in order to file a Ch7. And in this particular article, I would like to thoroughly discuss what those criteria are.

To begin with, it would probably make sense to first give you a short description of what a St Louis Chapter 7 is!! This type of bankruptcy is commonly referred to as a “straight discharge” of your unsecured debts. This would include things like: credit cards, medical bills, payday loans, old utility bills, overdrawn bank accounts, etc. As a result of this discharge (in which the federal government quite literally knocks out all your private debt), your credit score will rise rapidly. For instance, most people can expect to see their scores rise by about 100 – 150 points within the first year after filing a St Louis bankruptcy. So in this sense, it is a virtual “fresh start / clean slate” (a chance to wipe the slate clean, start fresh, and rebuild your financial standing).

So let’s jump right in, and talk about how you can take advantage of this kind of relief!! In the world of Ch7 bankruptcy, there are basically two questions that must answered. The first qualifying question is pretty straightforward, because it deals with timelines. The rules state that if you file a Missouri Chapter 7, then you must wait a full eight (8) years before filing a new one. So if you have previously filed a Ch7, then there might be a period of time that must first pass before we can file a fresh one for you. This happens from time to time, and more often than not, it is simply a waiting game to run out the clock. On the other hand, if your particular set of circumstances require that you cannot wait to file, then we can always put you into a Chapter 13 bankruptcy. Believe it or not, there are a great many benefits that come with a Ch13 that you cannot get from a Ch7. So if it turns out that a Ch13 is your only option, do not fret!!

The second qualifying question has to do with your household size (i.e. the number of people living in your home) and household income (i.e. a total accounting of income from all sources). For your particular household size, the federal government has determined a median income level. In other words, if you are a household of one, then there is an average level of income; if you are a household of two, there is an average level of income (as compared to most other households consisting of two people). So let’s look at a specific example. Let’s say you are a household of five (you, your spouse, and three minor dependent children). You work at a part time job where you receive $11 per hour, with about 25 hours worked per week on average (this is your only source of income). Your spouse works in a salaried position, and makes $45,000 per year (your spouse also receives $200 per month in child support from a previous spouse). And the three minor children do not contribute to the household.

In this scenario, the total household income from all sources is: $61,700 (from the part time job, the full time salaried position, and child support). According to the federal government, the average (or median) income for a household of five is: $91,580 (as of August 2018). So here we would have a situation in which you are well below the median income, and so long as you have not filed a Chapter 7 within the last eight years, you will qualify for one now!! But every household is different. In fact, many households have fluctuating sources of income. And this can result in any number of outcomes.

So let’s change the things up a bit for this next example, and see what happens. Let’s use the next example to determine what happens when you are above the median income for your particular household size. Instead of a household of five, let’s assume you are a household of three (you, your spouse, and one minor child). According to the feds, the median income for this size household is: $70,089 (as of August 2018). Now let’s also change the household income that everyone receives. In this example, let’s say that you work 40 hours per week at $20 per hour; your spouse is in a salaried position making $30,000 per year. This would equate to a total household income of $71,600, and placing you just above the median for a household of three. But the $71,600 is your gross income. In other words, you and your spouse do not actually bring home that amount of money each year. This is because you very likely have withholdings for taxes, medical or life insurance, union dues, charitable contributions, retirement savings, etc. And once these withholdings are processed by your payroll department, you end up netting far less. It is this net (or “take home”) amount that we would use to determine if you are above or below the median income level. And if we assume that between you and your spouse, you both have some of the regular withholdings described above, then there is a very good chance that you will end up being below the median, and therefore qualify for a Chapter 7.

In less frequent situations, we can file what is commonly referred to as a “Business Case” Chapter 7. This is when at least half of all your debt (secured and unsecured) is related to a business that you own and operate. When this happens to be the case, then we can apply the Business Case exception. This will allow us to forgo the median income analysis altogether. So even if your total household income is well above the median levels for your particular household, we can still put you into a Chapter 7 (so long as at least half of your debts are business related). Let’s look at a specific example so that I can show you what I’m talking about.

Let’s say you are a household of four. The median income level is therefore: $83,180 (as of August 2018). But your total household income is $125,000. So on paper, you clearly are way above the median income, and presumably do not qualify for a Chapter 7. However, it just so happens that almost all of your debts are related to a business that you own. For instance, let’s assume you have $50,000 in credit card debt, but almost every penny of that debt is in one way or another related to expenses for your business (such as lines of credit to buy materials and/or supplies, or handling vendors, etc.); and let’s say you have an additional $3,000 in business loans that you have personally guaranteed; and then you owe about $1,500 in medical bills. In this set of circumstances, more than half of your debt is business related. This being the case, we would be in a good position to invoke the “Business Case” Chapter 7 (and therefore completely avoid the calculation involving household size and income).

These are the basics involved with the filing and qualifications for a St Louis Chapter 7 bankruptcy. Of course, the best way to determine whether or not you can file such a petition is to simply make an appointment to come see us! We will answer all your questions, fully describe the processes involved with a Ch7, and get you back on your financial feet!! So get in touch with us soon, and we will get to work on your case immediately!

At The Bankruptcy Company, we want to make sure that you receive the very best bankruptcy services in all of the St Louis Missouri area. Our team will get you back on your feet, help to dramatically improve your financial standing, and put you in the best position possible for the future. The attorney fees for a standard St Louis MO Chapter 7 are $675, and the upfront fees for a St Louis MO Chapter 13 are $300. But the initial consultation is free of charge!!