Filing for bankruptcy is a serious decision. It is not a choice you should make lightly, nor is it a quick solution to financial difficulties. If bankruptcy is even in consideration for you, there must be years of financial issues that have led to this point.
Bankruptcy doesn’t cure all your financial ailments. While filing for bankruptcy may allow you to become financially stable once again, it does come with a cost, both financially and lifestyle-wise. Bankruptcy should be viewed as a last resort to be considered only when all other potential courses of action have been exhausted. But if you’re seriously considering it as an option, you should consult an attorney.
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Signs That You Need a Bankruptcy Attorney
Bankruptcy is a long-term issue that doesn’t suddenly happen overnight. Deciding to go forward with filing for bankruptcy is not a simple move, as it could impact your finances for years to come.
Things to consider before filing for bankruptcy:
- Have you exhausted all other options?
- Are you prepared to surrender your non-exempt property?
- Do you qualify for bankruptcy?
Some obvious signs that bankruptcy might be in your future include:
- All your credit cards are maxed out
- You’re making daily purchases using only your credit cards that you can’t afford to pay off; meaning your debt is growing rather than shrinking
- You’re consistently paying overdraft fees
- Debt collection agencies keep contacting you
- Creditors are threatening you with legal action
- You had a sudden job loss, divorce, or medical setback
- You don’t qualify for debt management programs or debt consolidation loans
Those considering filing for bankruptcy need to know what they’re getting into before they start the process. You should know that:
- Filing for bankruptcy can cost thousands of dollars
- It could result in property loss
- Your credit score will be damaged
- Bankruptcy is not a quick solution, but a long term process with serious consequences that will be felt for years
What Does a Bankruptcy Lawyer Do?
A bankruptcy lawyer advocates on your behalf and is there to help guide you through the process. They will minimize the impact of your bankruptcy while counseling you on what decisions to make.
- Explain state-specific rules and exemptions
- Talk you through the bankruptcy process
- Help you complete all of the appropriate bankruptcy paperwork
- Figure out what type of bankruptcy filing you need (more on this below)
- File your bankruptcy petition
- Preserve any valuable assets
- Lessen future negative outcomes
- Avoid common bankruptcy mistakes
- Exercise your legal rights
- Create a manageable repayment plan
- Discuss the impact on your credit report and home buying
- Talk you through what to expect in court
- Explain the other options available to you, which might help you avoid bankruptcy altogether
Things to Look for When Searching for a Bankruptcy Attorney
When trying to identify the right bankruptcy attorney for you, there are a few key considerations to keep in mind: How long have they been dealing with bankruptcies? Have they worked on bankruptcy cases similar to yours before?
Make sure you meet with a few different lawyers before you select who you want to represent you. After the initial consultation with each, ask yourself the following questions:
- Does the attorney have the expertise to help you?
- Are the fees competitive?
- Are you comfortable working with this person?
- How many years of experience do they have?
Sometimes having an attorney who is more experienced but who you don’t get along with as well can be more important. At the end of the day, you should choose the person you think will best represent you and your interests above any other factor.
What’s the Difference Between Chapter 7 and Chapter 13 Bankruptcy?
There are two main types of bankruptcy, Chapter 7 and Chapter 13 bankruptcy. The main difference between the two revolves around how your debt is repaid. Chapter 7 involves surrendering all your non-exempt property to pay off your debt while Chapter 13 involves creating a court-mandated repayment plan lasting three-five years to cover your debt.
Chapter 7 Bankruptcy
Chapter 7 allows debtors to quickly pay off most of their debts and start off on a clean slate in a relatively short period of time (typically three-five months). Chapter 7 does have eligibility requirements, mainly being that you have to have a below-median level income for your state, or you have to pass a means test to determine whether you can reasonably be expected to pay your debt with your disposable income (the amount left over after paying for your essentials).
Whichever option you choose, your unsecured debts (such as medical and credit card bills) are discharged, meaning you won’t have to pay them. Under Chapter 7 specifically, those types of debts are wiped away in your filing’s court approval. Some secured debt can also be discharged via Chapter 7, such as a car loan, if you give up the property involved (the vehicle).
Chapter 13 Bankruptcy
For those who don’t qualify for Chapter 7, Chapter 13 bankruptcy is your other option. You must have a regular income, unsecured debts totaling $419,275 or less, and secured debts totaling $1,257,850 or less. The benefit of Chapter 13 is that debtors can keep their property while prioritizing repayment to their most important assets, like their mortgage or car loan.
When it comes to unsecured debt with Chapter 13, you will still need to continue payments through your repayment plan. However, after the agreed-upon repayment term has ended, the remaining unsecured debt may be discharged. Chapter 13 also allows for some secured loan totals to be reduced. An example would be a lower balance on your car loan based on the vehicle’s depreciated value. Reductions like this would have to be approved in court before you begin your repayment plan.
All filings go through the U.S. bankruptcy courts where the cost to file is $335 for Chapter 7 and $310 for Chapter 13. These figures can be waived in court or implemented into your repayment plan.
Certain types of debt won’t be wiped out by either bankruptcy route, including:
- Tax debt
- Child support or alimony
- Student loans
How Can I Find a Bankruptcy Lawyer Near Me?
Bankruptcy laws are different in each state, so you need to find a lawyer who meets your specific needs. This decision can help save you thousands of dollars, so be sure to do your research before making your choice. Investigate attorneys and law firms in your area. Read reviews from real people who have been in a similar situation as you. Ask friends and colleagues if they have any personal recommendations.
Be sure to meet with the lawyers in person so you can make the best decision possible. Many attorneys will offer a free consultation, so set up more than one. Start with these resources: The American Bar Association, The National Association of Consumer Bankruptcy Attorneys
How Much Will it Cost to File for Bankruptcy
Filing for bankruptcy and going through the entire process isn’t cheap. You will end up paying filing fees, court costs, and attorney fees, which can all add up if even more complications arise with your case.
The filing itself costs $335 for Chapter 7 and $310 for Chapter 13. On average, total costs can add up to more than $4,000 depending on which option you select. While that isn’t a small figure by any means, the average American owes $90,460 in debt when considering all types of debt such as credit cards, personal loans, mortgages, and student loan debt. The point of bankruptcy is to help ease the burden of your debt by lowering the amount you owe.
So while it will cost some money to get the ball rolling, you’ll end up paying a very small portion of what you owed prior to filing.
Where to Find Free Legal Advice
Each state offers free legal help for low-income individuals. For those considering filing for bankruptcy or struggling with debt, explore free credit counseling services or bankruptcy aid locations in your area. Searching “free legal help in [your state]” can help get you on the right track.
Additional resources include the Legal Services Corporation and Free Legal Help offered by the American Bar Association. Both services provide free legal aid for those looking for financial guidance about bankruptcy, debt, or other monetary troubles.
Can I File for Bankruptcy Without an Attorney?
Yes, it’s possible. But we don’t recommend it. Here’s why:
- Bankruptcy cases are heard in federal court, so filing is complicated
- Bankruptcy code is complicated, and there’s a lot of bankruptcy paperwork that you can’t afford to mess up. Some of the forms are hard to access, and if you miss even one document, your entire case can be dismissed.
- You’ll have to argue your case before a judge, which, if you aren’t familiar with courtroom decorum, could bring you even more complications and worries.
- You’ll still need to pay to hire bankruptcy petition preparers to make sure your filing paperwork is in order, and you’ll have to find them. A lawyer will already have people that they regularly work with and trust.
- You’ll have to take debtor education courses if you file on your own.
So while you technically can file without an attorney, to do so would be putting yourself at a major disadvantage. If you’ve gotten to the point where you’re planning to file for bankruptcy, you should do it as strategically as possible. This is a serious decision to make and you should only go through with it if you have proper legal aid throughout the process.
What actually happens once you’ve filed for bankruptcy? Watch this and learn more:
The Bottom Line
Filing for bankruptcy is no small matter. Debtors who have gotten to this point likely have years of financial trouble behind them, which is no easy feat to overcome. Do the in-depth research to determine if filing for bankruptcy is truly a move you need to make. If it is, make sure you choose the lawyer you believe will best represent you, your interests and your specific situation.
No, there are a number of debts that won’t be wiped out, regardless of if you file for Chapter 7 or Chapter 13 bankruptcy. These include mortgages, tax debt, many auto loans, child support or alimony, and student loans.
There is not a specific cash exemption when it comes to federal bankruptcy exemptions. That said, there is a wildcard exemption you can use to protect up to $1,325 in property. You can also use up to $12,575 from your homestead exemption to protect cash in a Chapter 7 filing. Beyond these methods, debtors will retain income that doesn’t go into their debt repayment plan or cash that is allowed to be kept via court-approved mandate.
This depends on which filing option you choose. Filing for Chapter 7 bankruptcy means all of your non-exempt property is surrendered to pay off your debts. This could mean you lose a house, car, certain bank accounts or expensive collectibles. However, property considered a necessity can be exempt, which also includes a house, vehicle, clothes, and household items.
Filing for Chapter 13 means you will lose part of your paycheck each pay period as part of the multi-year repayment of your debts.
Filing for bankruptcy is no easy decision. While it will help to relieve some of your debt burdens, there are notable downsides. For example, you could lose valuable property, filing can be expensive, a portion of your income will go towards repayment, your credit score will take a nasty hit, it won’t erase all of your debt, and it will go on the public record for anyone to view.
Regardless of which way you filed, there will be a waiting period to take out a loan for a house. Generally, it will take about 2 to 4 years for borrowers to be able to purchase a home. Those who filed through Chapter 7 usually have to wait longer than Chapter 13 filers. Lenders have different “seasoning” requirements, however, meaning different lenders will require different amounts of time to pass before they will even consider lending to you. Chapter 13 filers are viewed slightly more favorably due to the fact they are actively paying back their debts.
Your credit score will decline drastically if you file for bankruptcy, often by more than 100 points. Bankruptcy will remain a negative mark on your credit report for 10 years. It typically takes about 12-to-18 months for your credit score to start to improve. Returning to your score’s original level before your filing could take even longer.
Yes, the moment you file for bankruptcy an automatic stay goes into effect on the property in question. This prohibits the creditor from continuing the foreclosure sale. As long as the home hasn’t already been sold, bankruptcy can halt the foreclosure process.