Back in the old days Chapter 7 bankruptcy was generally used as a last resort for people that were dealing with mountains of debt. Bankruptcy was originally enacted by Congress to give people a second chance and a fresh start after being in financial distress. When individuals started abusing the bankruptcy laws, in 2005 Congress made changes to the bankruptcy code making it much harder to file for Chapter 7 bankruptcy. With the current laws, individuals that would have filed Chapter 7 in the past are now forced into a Chapter 13 bankruptcy. Previously, people who would abuse the bankruptcy system would run up their credit card debt and file chapter 7 to wipe it out allowing them just to do it over again. Many of these individuals have a consistent substantial income and could have paid their debts back over time. Because of these individuals, creditors lobbied Congress to change the bankruptcy laws.
With the new laws in effect, there are more requirements for the debtor to qualify for bankruptcy. The two main chapters for personal bankruptcy are still available, Chapter 7 and Chapter 13. Chapter 7 is also known as a straight bankruptcy, that will wipe out all unsecured debts while allowing the court to liquidate any unprotected assets to pay back the creditors. On the other hand, Chapter 13 is known as a wage earner bankruptcy. This is because the court negotiates to reorganize the debt by setting up a 3 to 5 year repayment plan. There are still many common bonds between the two types of bankruptcy, most importantly, the Automatic Stay. Also, nowadays when filing bankruptcy under any chapter, all debtors are required by the court to take a pre-filing credit counseling course and a post filing financial management course.
If the debtor is put in a Chapter 13 bankruptcy they are required to maintain a household budget during the 3 to 5 year repayment plan. Some people decide that Chapter 13 bankruptcy would work best for their situation to protect assets. While filing a Chapter 13, the court will appoint a trustee to monitor the finances of the debtor as they relate to the bankruptcy case. The court requires those filing to be responsible following a plan to get out of debt in no more than five years. For many, this makes Chapter 7 sound like a jewel. At first glance, Chapter 7 sounds like a no-brainer if you qualify. Although, everything is not always as good as it seems.
With all the good, there is always a downside too. One question that gets frequently asked to bankruptcy attorneys is, What won’t personal bankruptcy do? Filing for bankruptcy is not necessarily a cure-all to your debt problems. Many people think that if they file bankruptcy, they can wipe out the debt and keep the stuff. This is not true. The rule of thumb to use is, if you didn’t pay for it you can’t keep it. Even in a bankruptcy, debts that are secured are not eliminated. In most cases lenders will require a reaffirmation agreement for property that you want to keep. This agreement will restate that you will continue to make the payments to keep that property. Examples of secured property are, real estate, automobiles, and in some cases furniture. Another downside to filing for bankruptcy is, it will now stay on your credit report for 7 years for Chapter 13 and 10 years for Chapter 7. Personal bankruptcy is not always the right choice for everyone. If bankruptcy is used for what it was created, it can be a powerful tool for those drowning in debt.
Having crippling debt and the stress that goes along with it is not fun. That’s why so many people are choosing bankruptcy to eliminate their debt. When filing for bankruptcy there are many costs that are involved. A bankruptcy attorney will be the largest portion that you have to spend to file. When hiring a bankruptcy attorney, consult with a few of them so you have an idea of the dynamics of the law office and if it will work for you. Make sure to get the estimated costs and fees in writing and ask questions what the additional costs that you might incur would be. Usually, filing Chapter 7 bankruptcy in most cases it is just a flat fee because they’re pretty straightforward. If you think you might need to file a Chapter 13 the costs will be a lot higher. In a Chapter 13 bankruptcy the attorney has to negotiate with the bankruptcy trustee and creditors to work out a 3 to 5 year payment plan. Most attorneys allow their legal fees to be included in the reorganization plan to be paid over time. Other costs that a bankruptcy filer needs to consider is the filing fee that is paid to the court and the pre-bankruptcy credit counseling course and the post financial management course. These courses usually run between $30-$50 and can be taken easily online.
When deciding on which bankruptcy attorney to hire, educate yourself on the filing process so you can ask appropriate questions. Usually, attorneys will want a retainer fee to get started on your personal bankruptcy petition. When filing Chapter 7 bankruptcy, attorneys will want to be paid in full before filing the petition with the court. The attorney fees for a Chapter 7 are usually nominal as most cases are usually completed quickly and easily. With a Chapter 13 bankruptcy the fees can be double of what you might pay for Chapter 7 because of the time spent and the complexity. Whatever the chapter of personal bankruptcy you’re filing, always ask for a list of charges upfront so there is no surprises halfway through your case.
Most people in the process of filing personal bankruptcy don’t have very much money set aside to hire a bankruptcy attorney, but if you consider the amount of debt you’re walking from the fee you have to pay seems more reasonable. Attorney prices vary from state to state and even office to office, that’s why it’s important if you’re on a strict budget to check around and get the best legal counsel for the amount you can afford. There was a spike in fees after the law changed in 2005. Most attorneys raised their fees due to the added amount of work and time it takes to complete a petition. There a lot of legal professionals out there today advertising extremely low prices and people need to beware and check references to make sure the attorney you hire is not a personal injury attorney that’s just jumping on the bankruptcy bandwagon.
Every state in the US has their own exemptions under the bankruptcy law and some districts even control the amount on what a personal bankruptcy attorney or paralegal can charge for preparing the document. With a Chapter 13, the trustee is more likely to scrutinize what an attorney is charging the debtor. Recently, there have been cases were the trustee has thought that the bankruptcy attorney or the document preparer has charged too much and will ask for the money to be returned to the debtor. Some states are more strict than others, so it really depends on where the debtor lives. When filing for bankruptcy check the local court website or even call the court and ask if there’s any restrictions on the amount a bankruptcy attorney or preparer can charge. This will give you a good idea of what you’re going to have to pay.