Bankruptcy, Is It A Way Out

Negotiations with creditors have failed. Repossession is imminent and foreclosure proceedings have begun. Your income is simply not sufficient to pay your bills, no matter how low the payments are. It may be time to consider bankruptcy.

Bankruptcy law evolved as a reaction to the abuses surrounding debtors prison. Before the nineteenth century a prison system existed for those who didn’t pay their bills. If a merchant filed a claim, the debtor was incarcerated until his debts were paid. (Women were not found in debtor’s prison, not because of chivalry but because they did riot have the ability to borrow). The lender was legally responsible for the expenses of the prison stay, including food, but seldom paid. After all, a debtor would have to sue in order to enforce this law, and it was rather difficult to sue when in prison. As a result, many borrowers languished in prison for years, surviving on what their family could bring to them or, in many cases, simply starving to death. Although some lenders would doubtless not object to the renewal of debtor’s prison, fortunately we live in more enlightened times. Bankruptcy was created to provide a second chance (or third, or fourth) to those hopelessly in debt It provides a mechanism to wipe the slate clean and begin anew. As times have changed, though, so has the bankruptcy code. Not all debts can be wiped out. The proceedings can be easily disqualified in the event of improper procedures. There are many things a debtor should know before resorting to bankruptcy.

The Bankruptcy Decision

There are two kinds of individual bankruptcy: Chapter 7 and Chapter 13. Chapter 7 bankruptcy, named for the chapter number in the bankruptcy code, requires a full liquidation of all debts and cancels all no-exempt debts. Chapter 13 bankruptcy is essentially a court-mandated payment plan that sets up affordable monthly payments to your creditors,

The decision to declare bankruptcy is not an easy one. Unfortunately, many bankruptcy attorneys recommend bankruptcy to just about anyone they consult with. All too often frightened consumers are advised to declare bankruptcy just to avoid a few debts. This is a mistake. Bankruptcy should truly be a last resort as the legal system meant it to be. A bankruptcy appears on your credit for ten years, and although lending criteria are slowly changing, many lenders will not even consider an applicant who has had a bankruptcy. What’s more, a Chapter 7 bankruptcy can cost you most of your property. Before making a decision to declare bankruptcy, estimate how bad your situation really is. On a piece of paper, make a list of all your assets and the approximate value they could be sold for. On the other side, add up all of your debts. If the debts exceed the assets by a large percentage, you may wish to consider bankruptcy. On the other hand, if it seems that your situation may improve (you may get a new job or a second income), or if your assets are of greater value or close in value to your debts, a different approach may be appropriate.

Negotiate with your creditors

Explain your situation and ask for more time to pay. If the creditors refuse and continue to threaten garnishment tell them such action would force you into bankruptcy. No creditor wants to hear the “B” word. Using bankruptcy as a threat is a very powerful negotiating tool, confronting creditors with a choice between getting a little each month or probably getting nothing through bankruptcy. Don’t try this tactic on secured creditors. They may decide to repossess your property to avoid having to go through court.

Contact Consumer Credit Counseling

As mentioned earlier in the book, Consumer Credit Counseling is a non-profit group funded by creditors to help consumers negotiate repayment plans. It is often able to negotiate payment arrangements better than the individual because of its constant contact with a variety of creditors. If you can’t negotiate a satisfactory arrangement, give these people a try. Remember, the fact that you are using credit counseling may appear on your credit record.

Consider Chapter 13 bankruptcy

This kind of filing allows you to repay your debts in a court-mandated fashion and will appear on your credit record for only seven years, If negotiations fail or there simply isn’t enough money to make ends meet Chapter 7 bankruptcy may be your only option. Bankruptcy does not necessarily discharge all debts. If your debts are exempt from bankruptcy, filing will do very little to improve your situation. If a co-signer was used, the debt would then be owed by the co-signer, unless that person also declared bankruptcy. In community property states a spouse’s assets and debts would also be included in the bankruptcy, assuming they are community property. Consider all very carefully before deciding to file.

Non-Dischargable Debts – Bills You Have To Pay In Spite Of Bankruptcy

Certain kinds of debt cannot be automatically eliminated by bankruptcy filing. They must meet certain requirements before being eliminated by bankruptcy. If most of your debts are non-dischargeable, bankruptcy may not solve your financial dilemma. The only ways a non-dischargeable debt can be eliminated through bankruptcy are through an exception being granted by the court, a certain period of time transpiring since the debt was due, or because the creditor does not object to the discharging of the debt. Certain debts can only be discharged by an exception. They are:

Recent Student loans

This applies to student loans that became due within the last five years. Any extension of repayment would be added to this time period. Some courts, furthermore, will only discharge payments that are more than five years past due. So if the student loan was due seven years ago and the payments were originally to be made over a five-year period, you would still be responsible for the last three years of payments. The court may also grant an exception to a student loan if it would produce an “undue hardship” for you to pay it. This is rarely granted.

Taxes

Federal, state, and local taxes are not dischargeable for at least three years after you file your tax return. Even if you’ve been tied up in tax court for more than three years, any tax assessed within 240 days of filing for bankruptcy is non-dischargeable. Property taxes are dischargeable if they are over one year late, but the lien against your property is not. The bottom fine is that you can count on the government collecting its tax money eventually.

Child Support and alimony

These can only be discharged in special circumstances, which generally include agreements that have not been court-ordered. If one spouse has agreed to assume more than half of marital debts in exchange for lower support payments, the court may not discharge all debts held by the spouse for bankruptcy. Consult an attorney if this situation applies.

Fines

Neither fines from a court, judge, or government agency nor surcharges, penalties, and restitution, as a general rule, can be discharged in a bankruptcy. The same is true of debts incurred as a result of damage or liability from driving while intoxicated. The debt incurred from intoxicated driving must be established in court and a judgment must be issued by a higher court. Small-claims, traffic, and municipal judgments for intoxicated driving are all dischargeable. Once again, consult an attorney.

Debts not discharged in a previous bankruptcy

If debts from a previous bankruptcy have been found non-dischargeable, they cannot be discharged in a later bankruptcy.

Debts not listed on your bankruptcy petition

If you do not include a debt on your petition, it will not be discharged. Many people filing bankruptcy keep one or more credit lines with small balances or no balance out of the bankruptcy proceeding to preserve part of their credit resources. Another strategy is to reaffirm debts on the condition that credit continues to be offered. The creditor, confronted with a choice between collecting nothing and maintaining your credit, will sometimes choose the latter. Be very careful when reaffirming debt. You are not obligated to and you should have a new written agreement spelling out all of the new conditions.

Other kinds of non-dischargeable debts can be discharged immediately if the creditor does not object If the creditor objects, these debts will be judged by the court to be either dischargeable or non-dischargeable. The creditor can ask that the debts not be discharged if they claim the following conditions existed:

The debt was acquired by Intentionally fraudulent behavior

Fraud in this case is any dishonest act used to obtain credit. Claiming to be someone you are not, or borrowing money when you have no means or intention of repaying it, would be clear-cut examples of fraud. Not disclosing certain relevant facts could also be construed as fraud. If you make a promise and intend to keep it and believe you will be able to keep it, that is not fraud. Creditors tend to be paranoid and believe everyone is defrauding them, so this excuse for non-discharge is often used by creditor’s attorneys.

Debts Incurred as a Result of False Written Statements

A blatantly false credit application would qualify. The inaccurate statement must be an important fact and one that the creditor relied on in order for the debt to be judged non-dischargeable. A misspelled name or minor error would not render a debt non-dischargeable. Drastically overstating income or misrepresent a job title would be considered fraudulent.

Fraudulent usage

If you charge “luxury goods or services” in an amount over $500 within 40 days before filing bankruptcy, the debt is likely to be deemed non-dischargeable. The same is true if cash advances are obtained fewer than twenty days before declaring bankruptcy. A lot of small charges, made to avoid pre-clearance, would also be considered fraudulent if you were over your credit limit or obviously unable to pay.

Debts resulting from illegal or malicious acts, embezzlement, larceny, or breach of fiduciary Responsibility

Any money owed because of illegal acts such as embezzlement (taking property left in your safekeeping), larceny (theft), or the failure to fulfill your duties as a trustee can be non-dischargeable. The court will usually de a definition of fiduciary responsibility.

Once you’ve examined your debts and determined what is dischargeable and what is not, you can determine whether bankruptcy would enhance your current financial situation. There are several other things you should know before you decide whether to file.

Exempt Assets

A common misconception about bankruptcy is that you lose everything you own to satisfy your debts. In fact, the court will allow you to keep many things essential to your well being, and perhaps even a little bit more. Although there is a federal exemption law, only in states and the District of Columbia allow you to use it These states let you choose between the state and federal exemption laws. The in states are:

Connecticut

Hawaii

Massachusetts

Michigan

Minnesota

New Jersey

New Mexico

Pennsylvania

Rhode Island

Texas

Washington

Wisconsin

Vermont

The other states require a person declaring bankruptcy to use state exemptions.

Here are some examples of things that may be exempt, depending on the state in which the petition is filed.

· Personal effects

· Furniture

· Cars (up to a certain amount of equity)

· Tools of a trade

· Equity m a residence (sometimes the entire residence)

· Clothes

· Household goods

· Books

· Jewelry

One very interesting exemption is the homestead exemption. When John Connally, the former governor of Texas, declared bankruptcy a few years ago, many people were surprised that he was allowed to keep his huge mansion, valued at several million dollars. Texas has a homestead exemption that allows anyone petitioning bankruptcy to keep up to one acre in an urban area or 100 acres in a rural area, regardless of value. The ex-governor may have had a very good attorney, but many other states also offer homestead exemptions.

One bankruptcy strategy is to sell non-exempt property before bankruptcy and convert it into exempt property. For example, a Texas resident might sell non-exempt assets and use the proceeds to pay off the home mortgage on her homesteaded property. You would almost certainly want to consult an attorney before attempting this kind of transfer of assets, however, since the court could very easily view such action as an abuse of the bankruptcy laws.

Even if a certain amount of equity is exempt, your creditors can often sell the asset to recover any excess equity you may have. If you own a car worth $10,000, for example, and you only owe $5,000 on it and your state exemption is $1,200, the creditor can sell the car and give you $1,200. Some states allow ‘Wildcard” exemptions that can be used to cover the difference.

Knowing which debts are dischargeable and what the law allows a petitioner to keep, a rational decision can be made whether to file for bankruptcy. If you do choose to file, there are several ways of going about it-as well as several pitfalls to avoid.

Taking Action

When you’ve decided to take action you can begin the filing process. If creditors are knocking on the door and repossession, foreclosure, or garnishment is just around the comer, it may be wise to consider using an emergency filing to obtain an automatic stay. An automatic stay stops creditors from taking any further action until the case goes before a bankruptcy judge. Unlike a bankruptcy filing, which usually contains several pages of information an emergency filing is only one page long and contains a list of your creditors. The rest of the petition has to be filed within fourteen days or the case is dropped. The court will send notices of the pending bankruptcy to the creditors listed, who must cease all further collection action. If they do not cease, send them copies of the automatic stay and request that all further collection action cease. A creditor can ask that the automatic stay be lifted, allowing him to continue collection action. Only a landlord trying to evict you from a rented dwelling will usually prevail, unless there is a long-term lease involved. If you are renting on a long-term lease, which could be considered an asset, the landlord may have to wait for a formal @g in order to evict YOU.

Once the wolves are at bay, another decision will need to be made: whether to hire a bankruptcy attorney. Attorneys, as we all know, are expensive. In the case of a complicated bankruptcy, however, they can be invaluable. If you have quite a bit of property or valuables, if you are trying to move money from non-exempt to exempt assets, if your creditors try to make your debts non-dischargeable because of fraud, or if there are any other complications, you may wish to hire an experienced bankruptcy attorney. Shop around. Don’t be afraid to negotiate. Ask a lot of questions and talk to several attorneys before you make your decision.

If you have a very simple bankruptcy or can’t afford an attorney, invest $15 in a good do-it-yourself bankruptcy book. It will give in-depth information not covered in this chapter. Typing services am also available to type up bankruptcy forms. They are reasonably priced and, in the case of a very simple bankruptcy, can take the place of an attorney. If your case is complicated and you can’t afford an attorney, do your own research. Read a consumer bankruptcy manual first and then consult a good legal library. There are several legal guides devoted strictly to bankruptcy. Once you or your attorney have prepared your case, you’re ready for formal work.

The Filing Process

All the appropriate papers can be obtained from your local bankruptcy court. Consult the yellow pages under Government Services (usually in the beginning of the book) for an address and phone number. The court allows you fourteen days from the date of an emergency filing to complete the formal process. If Chapter 7 bankruptcy is being filed, you will need to send in the following forms after you have received them from the court:

· Statement of Financial Affairs.

· Schedule of Current Income and Current Expenditures.

· A schedule describing your debts.

· A schedule describing your property.

· A schedule listing exempt property.

· A summary of the above schedules.

· Statement of Intention in regard to your secured property and what you intend to do with it

· Statement of Executory Contracts describing contract that will need to be fulfilled, such as auto leases.

· Bankruptcy Petition cover sheet.

· Mailing addresses of all creditors.

· Any required local forms.

A fee will also be assessed, usually $90, due at the time of filing. The court will usually accept installments of a four-month period. An application for installments must accompany the petition.

After your petition is filed, a meeting of the creditors will be arranged. The court appoints a trustee to preside over the meeting and to be responsible for the liquidation of assets. With most smaller bankruptcies, only the person filing and the trustee will attend. The trustee, who is usually a local attorney, will ask several questions about the information on the bankruptcy documents. Call and ask the court clerk what papers you will need to bring (usually financial statements or sometimes even tax returns). If a lot of property is involved, especially if it is nonexempt, property, your creditors may show up to protest any exemptions. They may also attempt to grill you about your intent to pay the bill or about lying on your application. Answer truthfully and there shouldn’t be a problem.

If the creditors’ attorneys become abusive, demand a hearing before the bankruptcy judge before the proceeding goes any further. If the creditors object to any of your exemptions, they have 30 days after the creditor’s meeting to file an objection with the court. The court will schedule a hearing and you will be given the opportunity to respond, although you don’t have to. A creditor may also try to claim a debt as non-dischargeable because of fraudulent acts, a @ or malicious act, or embezzlement or theft. He can only accomplish this if he successfully raises the objection within sixty days of the creditors’ meeting. To defend yourself, you or your attorney will have to file a written response and be prepared to argue your case in court.

Once all the requirements have been met and your intentions have been made clear, the court can declare the bankruptcy discharged. No formal hearing will be held unless you have chosen to reaffirm your debt in which case the judge will want to be sure that you understand what you are doing. After this time, provided the creditors do not raise any objections, the dischargeable debts are erased.

Picking Up The Pieces

Bankruptcy was once the lowest disgrace that could befall someone. Today, however, it is commonplace. Corporations declare bankruptcy to get out of contracts or avoid legal judgments. Individuals rely on it to protect them from a society that extends credit too quickly.

Bankruptcy does not mean that you will automatically be denied all credit for ten years. In fact, many firms look at bankruptcy as a responsible way of discharging debts when there is no other way out. Creditors fear bankruptcy, but they also realize that if they lend to someone who has declared bankruptcy, they need not worry about another bankruptcy for seven more years (you can only file once every seven years). If you happen to have a good explanation for the bankruptcy, such as medical bills, divorce, or some other catastrophic event, a creditor may be willing to overlook it and extend credit. Ask potential creditors about their policy toward bankruptcies. Their responses may be surprising.

Debtors Seek Cheap, Low Cost Affordable Bankruptcy With Rising Bankruptcy & Here’s How You Get It

With the trend towards rapidly rising filings in bankruptcy becoming the norm once again in today’s dire American economic and unemployment climate, a growing number of consumers are increasingly seeking cheap, low cost affordable bankruptcy, usually meaning without the lawyer. They seek nonlawyer system of bankruptcy filing that provide them affordable, cost-effective bankruptcy, while yielding them the same end result as would using a high cost bankruptcy lawyer – having in hand the bankruptcy court document that shows you’re officially declared a BANKRUPT.

THE NEW REFORMED LAW: ITS BASIC MISSIONS & OBJECTIVES

On October 17 2005, amidst highly charged tense drama, robust promises and high expectations, the new “reformed” bankruptcy law enacted by Congress, the 2005 Bankruptcy Abuse and Consumer Protection Act or BAPCPA, went into effect. Largely enacted at the instigation principally of the powerful, well-financed credit and financial industries, among other special interests, the law had been touted as something of a bankruptcy cure-all that was going to fix a “broken” bankruptcy system in America. Principally, it was going to reverse, or at least drastically reduce, the high volume of bankruptcy filings and the increased use of bankruptcy by American consumers in resolving their debt problem. The overarching argument and premise expressed by the banking and financial industry advocates and supporters of the reform law in urging the law’s enactment, had been that the steady upward trend at the time in bankruptcy filings was due primarily to “fraudulent bankruptcy filings” by consumers and the “excessive generosity” of the old bankruptcy system which, it was said, encouraged “abuse” and allowed a great many number of debtors to repudiate debts that they could quite well pay, at least in part. Ironically, almost in the entire debate about the enactment of the 2005 law, virtually no mention or discussion was made concerning the debtors’ being able to find, or to afford or to get, low cost or cheap bankruptcy filing, either with bankruptcy lawyers or without it.

The stated and yet unmistakable mechanism by which the new 2005 law was to pursue this primary objective of the new law, was essentially to force debtors who could supposedly afford to repay some of their debts, into filing for Chapter 13 bankruptcy, in stead of Chapter 7. That is, filing the type of bankruptcy (Chapter 13) that requires one to repay his debt, or at least some of it. Briefly summed up, primarily by restricting access to eligibility for Chapter 7 – as primarily determined through the so-called “means test” calculation on a debtor’s income – the new law was to drastically weed out and curtail the number of debtors filing for bankruptcy.

Alright, today it is now going to 4 years since the BAPCPA law was put into effect, and has it attained its sponsors’ stated mission? And if so, to what extent so far?

In point of fact, for the first few years after the implementation of the law in October 2005, the original objective of that law at least in the area of drastically curtailing the number of bankruptcy filings, actually seemed not only to have been attained, but to have in fact been dramatically surpassed. Almost immediately after the law came into effect, there was a blunt, vivid dramatic drop seen in the number of bankruptcies filed in the system in the years immediately following the law – the filings went from 1,597,462 in 2004 (the last normal year of filings before the new law was enacted), to a mere 590,544 in 2006, and only 826,665 in 2007. No bankruptcy filings that were low cost or affordable to debtors, were largely available in this earlier post-2005 law, however, since most filers at the time were largely intimidated by the lawyers’ common talk about the supposed “complexity” of the new law, and simply used only the lawyers to do their bankruptcy almost exclusively.

Thus, clearly, a direct effect of the new law, at least in the immediate aftermath of the law, was that it did in fact definitely push, as intended, a great number of debtors out of the Chapter 7 option range altogether, forcing them exclusively into the Chapter 13 option in which they find themselves forced to pay at least some of their debts, thus substantially increasing the proportion of debtors who paid up some of their debts. For example, in years prior to the new 2005 law, Chapter 7 bankruptcy filings accounted for roughly 70% of all non-business or consumer bankruptcies (it was precisely 71.5% in 2004, the last year before 2005 when the new law took effect), while Chapter 13 bankruptcies accounted for approximately 30% or less. The post-2005 year bankruptcy filings for the earlier years after the 2005 law, showed, however, a marked increase in the number of bankruptcies filed under Chapter 13, to the extent of some additional 10%,. Thus, for example, the number of Chapter 13 bankruptcies filed in the 12-month period ending December 2007 (321,359), represented, not the usual 30%, but 39.1% of the total consumer filings for that year.

The situation described so far was what obtained with respect to the EARLIER period of the time after the new 2005 law came into effect. But now, fast forward to the LATER period, however – to today, in July 2009. And what we find is that the American debtors, once again, are fast returning to the same high rate of bankruptcy filings as the pre-2005 levels. In deed, informed expert projections are now that we’ll land right back pretty soon at the same old “square one” heights in bankruptcy filing – back to the old “bad” high pre-2005 bankruptcy filing levels which the 2005 “reform” law just enactment by Congress had been meant to cure and reverse.

According to data from the Automated Access to Court Electronic Records (“AACER”), there were over 120,000 U.S. bankruptcy filings in May 2009 or 6,020 for each of the 20 business days in May, marking the first time that daily bankruptcy filings have topped the 6,000 mark since the 2005 bankruptcy law was adopted. According to one widely respected expert at bankruptcy filing figure crunching, Professor Robert Lawless of the University of Illinois School of Law whose calculations place the average daily filing rate for 2004 (6,339) as the “benchmark” for the pre-2005 filing rate, what America is currently seeing is a filing trend which is already hitting the high pre-2005 mark, and right now the long-term trend is directly towards the same filing rate as before the 2005 bankruptcy law was adopted.

Thus, the returns from the May filings on an annualized basis, keep us on track for a projected filing of 1.45 – 1.50 million bankruptcies this 2009, depending on how closely the current trend adheres to, or deviates from, the bankruptcy filing trend for the remaining part of the year.

THE 2005 LAW HAS FAILED ON TWO FUNDAMENTAL COUNTS: FAILS TO STEM THE GROWTH IN BANKRUPTCY FILING RATE & IN KEEPING BANKRUPTCY AFFORDABLE

Clearly, then, the “reformed” 2005 BAPCPA law has woefully failed in its FIRST avowed fundamental objective of drastically curtailing the upward trend in bankruptcy filings by the American debtors. But, in addition to that, there is another very important way, in deed even a more profound way, in which that law has woefully failed for the American debtor: it has made the bankruptcy system far more difficult and cumbersome, and far more expensive and even unaffordable for debtors. For example, among the primary anti-debtor provisions of this new law, this current law:!

== now makes it harder for debtors to discharge certain types of debts

== now forces a greater proportion of debtors to repay their debts

== now imposes special responsibilities and restrictions that are uncommon, even upon bankruptcy lawyers and bankruptcy document preparers (e.g., lawyers are now required to personally vouch for the accuracy of the debt and financial information their clients providing, and to do more unnecessary paperwork) thereby giving the lawyers more excuses for jacking up their fees for bankruptcy even higher

o now imposes tremendous restrictions and undue scrutiny upon the Bankruptcy Petition Preparers
(the name given by the Bankruptcy Code for nonlawyers who help debtors with their
bankruptcy paperwork, as generally far lower costs), the net result of which has been to discourage affordable assistance for bankruptcy filers and thus chase them into the offices of bankruptcy lawyers who charge some 50 times the fee of the BPPS to do basically the same thing for the debtor

o now imposes a new requirement (and additional expense) which requires debtors to undergo credit and budget counseling, and

o subjects bankruptcy filers to a mountain of paperwork, documentation and procedures that could be quite daunting for anyone in order to file for bankruptcy.

EXORBITANT LAWYERS’ FEES FOR BANKRUPTCY FILERS AS THE BIGGEST ANTI-DEBTOR CONSEQUENCE OF THE NEW LAW!

But perhaps the biggest anti-debtor consequence brought about by the new law – the consequence which, by most expert opinion, is precisely what had been intended by the banking and credit industries which were principal sponsors of the new law – is that by introducing far more paperwork and unnecessary extra complexity and protocols in the way the bankruptcy process is undertaken, it has enabled the lawyers’ to find an excuse by which they have been able to jack up and to justify the fees and the costs of filing for bankruptcy. Consequently, the costs of filing for bankruptcy since after the 2005 law, have become prohibitively high, in deed unaffordable, for the average bankruptcy filer. The average lawyers’ fee for a simple bankruptcy in parts of the country today, has shut up to a whopping sum of $2,500 for a simple Chapter 7 bankruptcy, and about $4,500 for a Chapter 13, among other new complications now to be confronted by the debtor who wishes to file for bankruptcy. For many debtors, this therefore leaves the low-cost nonlawyer bankruptcy method, as the ONLY real remaining, practical, but affordable and effective alternative to the use of lawyers for their bankruptcy.

But Don’t Despair. There are Still Some Open Avenues of Cheap, Low Cost Affordable Bankruptcy Remedy For Debtors!

Here’s the good news, though. True, filing for bankruptcy under the new 2005 law has become considerably more cumbersome and certainly more expensive as compared to what had been the case previously. Nevertheless, however, even under the new law, filing for bankruptcy, especially Chapter 7, is still a fairly straightforward process for a large number of filers. This is so more especially when you (the debtor) do it using basically one unique alternative system to traditional use of lawyers in bankruptcy – namely, using a nonlawyer, self help system, or one which uses a competent reliable Debt Relief Agency or Full Service Bankruptcy Document Preparer, in doing your bankruptcy paperwork. This kind of service, which utilizes skilled persons possessed of great skill and competence in the process to prepare the required bankruptcy papers for a debtor for a mere fraction of the lawyer’s fees, could often be one of the wisest, most cost-effective and yet simple alternative in getting one’s bankruptcy done.

Cost of Filing Bankruptcy Using Attorney – Why Debtors Can Better Afford Bankruptcy Without Attorney

Bankruptcy: costs of filing bankruptcy with attorney, versus cost of filing using Bankruptcy Petition Preparer.

Under the current U.S. Bankruptcy Code or law, the system provides essentially TWO basic categories of outside assistance that a debtor filing for bankruptcy may use – assistance provided by an attorney, and assistance provided by a non-lawyer. And both of these parties come under what is called “Debt Relief Agents or Agencies.” Basically, the non-attorney assistance provider, who also goes by a name such as Bankruptcy Petition Preparer (BPP), preparers the documents upon which bankruptcy is filed with the Court for bankruptcy processing, while the attorney (or, more accurately, the help he hires that does such work) prepares the same set of documents, EXCEPT that the lawyer assistance-provider can supposedly give a debtor “legal advice,” and can appear, on the debtor’s behalf, in the administrative hearing on the bankruptcy case administered by the Court “Trustee” (who is not a Judge, but a court-appointed administrator) that will oversee the bankruptcy case.

Alright, How Do the Services and Fees Compare, Between the Bankruptcy Attorney and those of the Full Service bankruptcy petition preparer?

But what are the Costs of filing Bankruptcy using Bankruptcy attorney? Can debtors afford bankruptcy without lawyers? And, is there really any real, tangible, legitimate difference for the DEBTOR, both qualitatively and nominally, between the Full Service bankruptcy assistance that online-based non-attorney BPP agencies provide debtors, and that which is provided by online bankruptcy attorneys to debtors?

One view of it, popular in certain quarters among non-attorney online providers of bankruptcy filing assistance, is simply that there is “no difference,” or “little to none,” in terms of the actual or qualitative value of their work products for the debtor. The principal argument is that for each side, the actual, principal work that each side does or turns up for the debtor – the relatively simple but time-consuming, paperwork required to be prepared for the debtor’s use in filing for bankruptcy – is more or less basically the same content and quality for the non-lawyer prepared document, as it is for the lawyer prepared. In each case, the argument goes, the same set of documents are turned up by people who are seemingly experienced and trained or skilled in document preparation, and, in deed, in many real instances, are one and the same paralegals who work, or might have previously worked, for the bankruptcy lawyer’s office or the non-lawyer document preparer’s company. Or for both.

But, in any event, in the final analysis, the finished bankruptcy documents that both sides, the lawyer as well as the non-lawyer, provide the debtor, are generally the same and of the same quality. The Bankruptcy Courts generally accept them, process them, and act on them, just the same! In deed, it is a specific provision in the Bankruptcy Code that authorizes and sanctions that such persons may prepare such documents, and not just lawyers!

The Prices the non-attorney helper charges and what the attorney charges for Bankruptcy work

To a hard pressed and destitute debtor, the vexing, bothersome issue, is what justification, then, is there for the great disparity that exists in the prices the bankruptcy lawyers charge for bankruptcy work, relative to what the non-attorney bankruptcy document preparers charge for turning up essentially the same work for the debtor? Bankruptcy lawyers would, of course, advance all sorts of convoluted arguments and conceive all kinds of fancy justifications in defense of their extremely higher and disproportionate charges. That aspect, however, is a matter for another place and another day for us.

But is it a matter of no bankruptcy attorney, and cheap, low-low cost bankruptcy? For the benefit and information of debtors contemplating bankruptcy, just so you’ll at least have an idea, here are the differences in prices between what the non-lawyer assistance-provider charges, and what the attorney assistance-provider charges.

NON-ATTORNEY BANKRUPTCY HELPER’S SERVICES & PRICES

Service: In full Service bankruptcy work, the service of the non-lawyer debt relief agent or agency basically involves their staff gathering the various documents and required tons of papers and information together, and orderly arranging them and preparing all the legal forms and paperwork required by the debtor to file for bankruptcy with the bankruptcy court. For the better ones among them (they are not at all equal, some are far better than others, and quite a number of them are just about worthless!), these agencies use workers who are often highly trained and experienced paralegals (they average several years of work and/or training in the industry), and who are skilled at the preparation of legal documents and bankruptcy papers, and are often well versed and knowledgeable in bankruptcy filing law and procedures. With the Full Service bankruptcy petition preparers (at least those of them who are of the reputable and better categories), the debtor tends generally to get a better service and greater attention, and more one-on-one interaction for his or her case, along with the obvious far lower prices.

The Charges. There is usually a ONE-Time PAYMENT ONLY amount. One of such agency’s charge, for example, is $239 for a Chapter 7 bankruptcy; and $359 for Chapter 13. The price charged by these agencies tend strictly to follow an honest, upfront pricing that’s based ONLY on “per project,” rather than on “per hour.” (That’s in contrast to the attorneys’ charges, which are frequently based on “per hour” hourly rate).

This means that, once a reputable Bankruptcy Petition Preparer (BPP) takes any case from a debtor, you pay the BPP Agency, assuming it’s, say, a Chapter 7 case, just $239, and NOT a penny more on it, ever – no matter how many creditors you have (whether they’re 10 or 20, or 200), or you happen to start out with 10 creditors, but turn up 100 or 200 more later. Or, you have to file some additional papers to get some of your secured debts “affirmed” so you can keep, say, your car, etc. YOU JUST PAY THEM NOT ONE PENNY MORE. PERIOD! Thus, for most debtors, bankruptcy with no bankruptcy attorney assistance, offers the debtor low-low affordable costs and rates and is the only way to go.

The Time line. For the credible BPP, it takes an average of roughly one to two days to crank out the prepared, almost completed package of bankruptcy documents for, say, a Chapter 7 case filing (in a case, that is, where the debtor has hastened and substantially provides them the required financial information and documents necessary to do the papers). As a matter of policy, however, the BPP will hold off furnishing the papers to the debtor right away just so that the finishing touches, corrections and proper checking can be made before the debtor gets them. Bankruptcy, file with no bankruptcy attorney?

THE BANKRUPTCY ATTORNEYS’ SERVICES & PRICES

Service: What the bankruptcy lawyer (that is, the one who is competent and knowledgeable in bankruptcy, as not all attorneys are so equipped) does, is essentially akin to the Full Service bankruptcy type of work that the non-lawyer assistance-provider provides. Here, this involves the lawyer – or, more accurately, a staff of paralegals the he or she might have hired to actually do the work – gathering the various documents and required tons of documents and information together, and orderly arranging them, and preparing all the legal forms and paperwork required to file for the debtor’s bankruptcy with the bankruptcy court. As with the case of the non-attorney Full Service paper preparation providers, these workers who directly do the papers (the ones who are the persons that actually do the work in the lawyers’ the lawyers), are often highly trained and experienced paralegals (average several years of work and/or training in the industry) who are skilled at preparation of legal documents and bankruptcy papers, and often, well versed in bankruptcy filing law and procedures.

Furthermore, in terms of quality of service, with the lawyers, within the ranks of the lawyers who do bankruptcy work in the current times, those who file the bulk of the bankruptcy cases seem to be what one practicing bankruptcy lawyer, Jonathan Ginsburg, the Atlanta Georgia, calls “high volume filers.” These lawyers file 100 to 500 or more bankruptcy cases per month, using largely paralegals and some younger lawyers to do the paperwork, and for one thing, such high volume filers have a reputation for not offering much in the way of personal attention, but charge somewhat smaller fees relative to the “boutique” bankruptcy lawyers (those who file more limited number of cases) – a “smaller” amount of fees which Attorney Ginsburg admits, however, often still “appear to be too expensive” for some people “even [with] the lower fees and generous terms” that such volume filers think their charges represent.

Lawyers’ Charges: For Chapter 7, there’s the “initial” charge of $2,000 – 2,500; and for Chapter 13, the “initial” charge of $4,000 – $4,500. Unlike the BPP’s prices which strictly follow an honest, upfront pricing that’s based ONLY on one-time-only “per project” basis, the attorneys’ charges are frequently based on “per hour” hourly rate. (For example, the attorneys’ “per hour” hourly rate charge, was given as $228 (per hour) for their services in 2002, according to a respected independent research study, the 2002 Survey of Law Firm Economics, made by Altman Weil Pensa Publication).

Further more, as a rule, the lawyers’ fees for bankruptcy (the same, as well, in other issues) vary from lawyer to lawyer, and from one location to another location, even from a lawyer in one block to another lawyer just in the next block. The original charge (it’s usually referred to as the “initial” charge) you’re quoted by the lawyer, is often only for the run-of-the-mill, routine kind of case – the simplest, most ordinary kind of bankruptcy there is. So, if it turns out that you have, say, more creditors than the “average” (say, above 15 or so, depending on which lawyer or what part of the country), it will mean additional charge slapped onto your “initial” quoted charge. And, it can cost even more if it’s a “complicated” case in the lawyer’s opinion.

And further, God-forbid if there’s “litigation” or some creditor challenge to a debt, that means additional cost for you, a BIG one. If you are in a high-priced urban area, that alone will almost certainly guarantee more cost for you in filing for bankruptcy. Also, your lawyer will generally want his payment made IN FULL and upfront before he’ll represent you, especially if it’s a Chapter 7 case.

The Time line. Lawyers generally take an average of 2 to 3 weeks (if not more) to do the bankruptcy paper work for Chapter 7.

BOTTOM LINE:

In sum, for you as a debtor, what you should know is that bankruptcy lawyers’ generally make the allowance for themselves so they’d be able and in a position, after the “initial” fee shall have been paid them, to tack on additional fees beyond the “initial” fees you are quoted when you first signed on. The fee you are quoted by a lawyer in a bankruptcy case (even if you view it as excessive, already), may not be – and is often not – the final charge; you may still have to pay more. And probably will, generally!

Not so, though, with the non-lawyer bankruptcy assistance provider. Here, in contrast, that same very EXACT amount you’re quoted on day one, is the final and ONLY charge you’ll get, almost always, from them on the case – ever! PERIOD! The motto seems to be, no bankruptcy attorney & cheap, low-low cost bankruptcy!

Do you do your bankruptcy filing using the no attorney bankruptcy assistance, or the attorney?. What do you think?