How to File Bankruptcy
Bankruptcy can be a hard pill to swallow, especially if you consider yourself to
be responsible. However, this law was put into place for your protection. The
credit card companies don't care about making things easier for you, no matter
how loyal you have been. Here's what to expect, and how to make it as painless as possible.
1. Make sure that there are no other alternatives. A bankruptcy will remain on
your credit file for up to ten years. However, if you are considering filing,
your credit is probably already in bad shape. Bankruptcy allows for a fresh start.
Under the Bankruptcy Abuse Prevention and Consumer Protection Act ("BAPCPA"),
which significantly amended the U.S. Bankruptcy Code effective October 17, 2005,
prior to filing a bankruptcy case, an individual must obtain some consumer
credit counseling from an entity approved by the U.S. Trustee within 180 days of
the date of the filing of a bankruptcy case. Such counseling is intended to
provide an individual with alternatives to filing a bankruptcy case.
2. Consider the two common bankruptcy types. The most popular is the chapter 7
(which is a straight or liquidation bankruptcy), and there is also the chapter
13 (which is a repayment plan for individuals). BAPCPA has made it more
difficult to file a chapter 7 case because of the means test. Many individuals
will be forced to file a chapter 13 case because of the means test.
3. Research your options as it relates to filing. Some people choose to file
without the aid of a lawyer. However, it's highly recommended to hire a lawyer.
Your research should help you decide on a lawyer. In most cases, people who
choose large firms to represent them will work with a paralegal and not the
lawyer. Try to find a firm in which you have direct contact with your lawyer.
4. Meet with the lawyer you've selected and go over your "case." Your lawyer
should be asking and answering ALL of your questions. They will determine which
chapter is best for you, based on your financial affairs. A lawyer will also
assist you with completing the BAPCPA's means test.
5. Find out how much it will cost. The fees for filing are varied. Some lawyers
will charge a flat fee, while others will charge based upon the amount of debt
that you have. The former is always the best route to go. Some lawyers will
require that you pay up front before they file. Others will allow you to pay in
installments, and will file the case with a deposit.
The average fee is $1,700. There are some places that will file for free if you
do not have the financial means to do so. The average fee will vary depending
upon where you live. A lawyer cannot be your creditor in a chapter 7 case, so
the attorney's fee for a chapter 7 case must be paid in full before the case is filed.
If you still owe an attorney part of the bankruptcy fee when you file a chapter
7 case, it becomes uncollectable and the attorney must waive the unpaid balance
or else cannot continue to represent you. In a chapter 13 case, if agreed with
the lawyer, the entire attorney's fee need not be paid prior to filing, and may
be paid through your chapter 13 plan.
6. Refer all creditors to your lawyer's office, once he or she has been
retained. They will then be able to speak on your behalf (which means no more
annoying calls). Once your lawyer has filed your case, the "automatic stay" goes
into effect. This means that NO creditors should be contacting you about your debt.
This stay is enforced, and creditors can be liable if they go against it. A
willful violation of the automatic stay can result in damages being assessed
against a creditor, including a reasonable attorney's fee, and in appropriate
cases, punitive damages may be awarded.
7. Wait for a meeting of creditors. Once your lawyer has submitted your
petition, you will be notified by mail (most often) of your date for a meeting
of creditors (or a "341 meeting," named after the section of the Bankruptcy Code
requiring it). This meeting allows the trustee to ensure that you have given
truthful answers on your bankruptcy petition, and that you understand and agree
to filing for bankruptcy.