One of the greatest ironies in the law in the United States is that bankruptcy costs money. This is especially troublesome when you’re already broke. Our laws are so convoluted and so byzantine that in order to do it right, you have to have an attorney. While that sounds counterproductive for me to wish you didn’t need an attorney, I genuinely believe that people who have a simple enough situation should be able to file their case and handle things themselves as opposed to having to hire me. Then again, that’s a topic for another day. Bankruptcy gets you out of debt, but only if you have the money to file.
The costs included in bankruptcy include the following.
- Your filing fee: This varies depending on what chapter of bankruptcy protection you choose to file.
- Credit counseling class: the Bankruptcy reform act of 2005 made credit counseling classes mandatory for all filers. You can thank Joe Biden for that.
- Your attorneys fees.
As a general rule, I do not recommend that people file a bankruptcy “pro se” or without an attorney. It doesn’t matter how broke you are,filing bankruptcy without an attorney will likely do more harm than good and could even lead to you not being able to file bankruptcy again in the future. The change in the law from 2005 rigs the bankruptcy system against clients and all but ensures that without a competent attorney, your case will fail.
The only thing that congress did leave in place that makes sense is the one saving grace of bankruptcy, the ability to pay your bankruptcy attorney after you file Chapter 13.
Chapter 13 pays the attorney for you
A Chapter 13 is a repayment plan tailored for your individual budget. You make a monthly payment to a Chapter 13 trustee for anywhere from 3 to 5 years. Those plan payments also pay the lawyer who helped you file the plan in addition to ensuring that your creditors are paid back what they law determined that they’re owed.
In contrast, a Chapter 7 bankruptcy usually requires that you pay your attorney at least part of the fees you owe before you file. This makes paying for a Chapter 7 a more difficult process in and of itself albeit one that we are happy to work with you on.
In Chapter 13, your attorney is paid, through what is called an administrative claim. This means, once you pay your filing fee, your payment is the same each month going forward and your attorney is paid a portion each month out of your payment to the trustee.
Why Chapter 13 works best for many people
In a Chapter 13, you’re effectively financing your attorneys fees with no interest and this helps a lot when you’re flat broke. This can literally be a godsend when you need to file bankruptcy and you need to file now.
Obviously Chapter 13 comes with some downsides that certainly don’t appear in Chapter 7s. The biggest downside is that it takes longer to complete and to get your discharge. The length of time it takes to complete a Chapter 13 does deter people due to the fact that life gets in the way sometimes and can complicate your ability to make the plan payments.
Usually though, if you’re really broke, you can file a Chapter 13 with payments that are as little as $100 a month. If that’s not good enough, you can always rest assured that in the event that you can’t complete your Chapter 13, you always have the right to convert to a Chapter 7.
If you find yourself in need of an experienced bankruptcy attorney during these trying times, don’t hesitate to contact the attorneys at Harmon and Gorove. We have decades of experience helping people in a compassionate and cost effective way get out of debt. Contact our office today for a free, no obligation consultation where our experienced attorneys will review your situation and make a recommendation for how you can best get out of debt.