Missouri Laws on Bankruptcy and Mortgage Forbearance

Understanding bankruptcy and mortgage forbearance in Missouri is crucial for residents facing financial difficulties. Both processes offer relief but operate under different regulations and guidelines. This article aims to clarify the Missouri laws regarding bankruptcy and mortgage forbearance.

Bankruptcy in Missouri

Bankruptcy provides individuals and businesses a legal avenue to discharge debts or repay creditors under court supervision. In Missouri, the two primary types of bankruptcy filings for individuals are Chapter 7 and Chapter 13.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy allows for the liquidation of nonexempt assets to pay off debts. In Missouri, specific exemptions protect certain types of property, such as retirement accounts and primary residences, up to a certain equity limit. This type of bankruptcy is often completed within a few months, providing a fresh financial start for individuals burdened by unsecured debts.

Chapter 13 Bankruptcy

In contrast, Chapter 13 bankruptcy involves a repayment plan that enables individuals to keep their assets while paying off debts over three to five years. This option is ideal for those with a reliable income who wish to avoid foreclosure or repossession. Missouri law requires debtors to complete credit counseling and propose a repayment plan to the court for approval.

Mortgage Forbearance in Missouri

Mortgage forbearance is an agreement between borrowers and lenders allowing temporary payment relief. Homeowners struggling to meet mortgage obligations may opt for this alternative, especially during financial hardship or unforeseen circumstances.

Eligibility for Forbearance

In Missouri, eligibility for mortgage forbearance typically hinges on the borrower’s financial situation. The COVID-19 pandemic highlighted the importance of forbearance, leading to more flexible options such as temporary suspension or reduction of payments. Homeowners must communicate with their lenders to explore available options and negotiate terms.

Forbearance Process

The forbearance process generally involves submitting a request to the lender, explaining the financial hardship faced. Some key documents might be required, including proof of income loss, bank statements, or other relevant financial information. Once the request is approved, the lender will outline the terms, including the duration of forbearance and how missed payments will be handled once it ends.

Impact on Credit

Both bankruptcy and mortgage forbearance can significantly impact a person's credit score. Chapter 7 bankruptcy remains on a credit report for ten years, while Chapter 13 stays for seven years. Conversely, mortgage forbearance may not impact credit scores negatively if payments are made on time following the forbearance period.

Conclusion

Navigating Missouri’s laws on bankruptcy and mortgage forbearance requires careful consideration. Each option has its benefits and drawbacks, and understanding the specific state laws is essential for making informed decisions. Consulting with a legal or financial advisor can help individuals determine the best course of action based on their unique circumstances.