In order to have a clean slate and be relieved of debts, federal laws allow provisions for declaring bankruptcy. Before 2005, the laws were comparatively easy but now, they are pretty complicated. So much so that it is always recommended to hire a lawyer to make matters easy and hassle free. Before you decide to file for bankruptcy and hire a bankruptcy attorney, there is some education you need on the matter. The following points will clear your doubts about bankruptcy –
Consider All Options – It is only a hearsay that equates bankruptcy with a clean slate. In reality, there are a lot of things to consider. Most important of them being – Are you willing to have an almost permanent record on your credit history? Bankruptcy record would stay on your records for 10 years. Also, your creditors, if they are business clients or associates, might stop or refuse to do any more business with you. This is why bankruptcy is always the last resort. If you can, you need to try these options before declaring bankruptcy –
Refinancing – You can pay back your loans by refinancing or modifying your credit and owed debts.
Consolidation – For credit card debt, you can go for consolidation and get on top of your debt. Also, you can try negotiating with your creditors and work out a plan of payment that works for both of you.
Credit Counseling – There are professionals who can be hired for guiding and educating you through your debt situation.
However, sometimes you may not have any other option other than filing for bankruptcy. If you –
Are unemployed and have used up the remaining savings you have;
Still have back-taxes to pay;
Have a foreclosure on your home; or
Are going to be sued for the debts you have not paid.
In these cases, bankruptcy might be the only viable option.
Types of Bankruptcy – Basically, there are two common types of bankruptcy that can be filed by you –
Chapter 7 – This is the popular option. It is liquidation bankruptcy, which means that all your owed debts will be cancelled. Your protected property can be kept by you as long as you keep making payments. However, you will have to hand over your non-exempt property so that it can be used to pay back your creditors.
Chapter 13 – This allows you a time period of 3 – 5 years to set up a repayment plan to pay back your creditors. If you continue making your payments, you can keep your property, car and other large assets. Sometimes, you could be forced into this option after the means test is conducted.
Hiring a Bankruptcy Lawyer – Hiring an attorney is entirely up to you. It depends on the amount of confidence you have. However, it is still a recommended option because of the complexities involved in declaring bankruptcy. You need to file the papers properly and in the right way, otherwise your case could be thrown out of court and that would not be good. A bankruptcy attorney would know all the details and would save you from a lot of trouble. You can leave everything to them and focus on things that require your personal attention. Trifles and technicalities can be dealt by your attorney. The American Bar Association would help you get some free legal service, and you can explore your options with them as well.
Fees to Consider – Filing for bankruptcy is not a free of cost process and the following are the fees you need to consider –
Lawyer’s Fee – You need to consider the lawyer’s fee unless you go for the free legal service option. Different bankruptcy attorneys charge different fees – some charge a flat fee while others vary their fees depending on the amount of debt owed. Usually, you should look for a bankruptcy lawyer who charges a flat fee.
In order for your lawyer to file Chapter 7 case, they cannot be your creditor. Thus, the lawyer’s fee needs to be paid in full before the case gets filed. However, if some amount is still owed by you to your lawyer when Chapter 7 case is filed, the fees will have to be waived off by the lawyer if they want to continue representing you.
For Chapter 13 case, the fees can be paid to your lawyer through the chapter 13 plan and you need not pay it all on full before the case.
The average lawyer’s fee is around $1700.
Court Filing Fees – This would come around $200, but you can apply for bankruptcy fee waiver. That would allow you a reasonable time after the filing to pay your bankruptcy fee.
Credit Counseling – Under Bankruptcy code, as amended in 2005 by BAPCPA, it is necessary for every individual filing bankruptcy to undergo credit counseling from an approved entity by the US Trustee. This should be done within 180 days of filing the bankruptcy case. BAPCA has a means test to pass, which your lawyer can help you. Lesser means individuals will get to file Chapter 7 and others with better means will file Chapter 13.
The purpose of the counseling would be to discuss and educate you about the alternatives to filing bankruptcy and keeping it as a last resort.
Completion of the Filing Process – After the means test, the lawyer you have hired will file your case. The next step is a “meeting with creditors” so that the trustee can make sure all your answers and claims in your case are truthful. The meeting does not last for more than 10 minutes. You can go through the common sample questions with your lawyer prior to the meeting. Creditors will be within their rights to ask you questions. After 4 – 6 months of filing, your case will be completed.
Your creditors are allowed to challenge the decision within 60 days. After filing the petition, you will get an “automatic stay” from your creditors. For any questions, they have to contact your lawyer.