Some Very Basic Bankruptcy Info

Bankruptcy laws were created to help people that can’t pay their creditors get a clean slate of the debts they owe.  Depending on the bankruptcy chapter filed, this happens either by potentially liquidating the filer’s assets to pay debts, or by entering into a court supervised repayment plan. In some bankruptcy filings, both liquidation and repayment are used simultaneously.

When individuals or married couples file for bankruptcy, it’s referred to as a “personal” or “consumer bankruptcy”. The most common types of personal bankruptcy are Chapter 7, and Chapter 13 (chapters of the United States Bankruptcy Code).  All bankruptcies must be filed in federal court.  While bankruptcy information prevalent all over the Internet, one importnat aspect to note is that bankruptcy a federal matter; no bankruptcy can be filed in any state court.

Chapter 7 Bankruptcy

Chapter 7, also known as “liquidation bankruptcy,” is the most common type of personal bankruptcy filed. It’s available to individuals and married couples who file jointly. Chapter 7 eliminates all of the filer’s dischargeable debt, leaving the person or couple debt free in most instances after the bankruptcy is concluded.  Student loans and government fines such as parking tickets are not eliminated in a Chapter 7.

The court cost, or filing fee, for Chapter 7 is $299. A Chapter 7 can only be filed once every eight years, at it typically takes 4 months or so to run its course.  Completing credit counseling with an agency approved by the United States Trustee is required to successfully file a Chapter 7 bankruptcy and receive a discharge. (For a list of all approved agencies in your state, see the U.S. Trustee’s website and select “Credit Counseling and Debtor Education.”)

A “Trustee” is appointed by the court in each Chapter 7 to monitor the case and represent the creditors listed within one’s bankruptcy petition. It is the Trustee’s job to gather and sell any “nonexempt property” for repayment to the creditors. “Nonexempt” refers to what assets your state says you can keep through a bankruptcy process. You’re able to keep any “exempt” property when filing Chapter 7, such as a certain amount of cash, household goods, etc.             In a majority of Chapter 7s filed nationwide, none of the filer’s assets are liquidated by the Trustee and all dischargeable debt is eliminated.

To successfully file a Chapter 7 bankruptcy, a person or couple must qualify financially. If one earns less than the median income for a family of their size in their state, they can file for Chapter 7 without any further issues. However, if one’s income for their family size is above their state’s median income, their household’s income and expenses must pass the bankruptcy court’s “Means Test” to qualify for Chapter 7.  Those who can’t qualify for Chapter 7 must file a Chapter 13 bankruptcy.

Chapter  13 Bankruptcy

Chapter 13 is also known the “repayment plan” or “wage earner’s bankruptcy”. In a Chapter 13 one files a plan showing the bankruptcy court how they’ll repay their debts over a five year (60 month) period. A monthly consolidated payment is made by the filer to the Bankruptcy Trustee who then disperses that payment out to the filer’s creditors. Because the filer’s plan requires regular monthly or even biweekly payments, Chapter 13 is usually only appropriate for those who have a stable source of monthly income.

Filing a Chapter 13 stops all collection activity against the filer and it is often preferred by people who have a valuable asset, such as a home in foreclosure that they want to keep. The Chapter 13 plan allows the filer to catch up on overdue payments, such as mortgage arrears. It is also often filed by individuals and married couples who want to keep an asset such a house that may be liquidated in a Chapter 7, or by those who have filed a Chapter 7 in the last eight years.  It can also be filed to stop IRS collection of unpaid taxes.  Chapter 13 is also usually the only option under the bankruptcy code for those prospective Chapter 7 filers who don’t pass the “Means Test“.

The filing fee for Chapter 13 is $274. There is technically no legal limit to the amount of times one can file Chapter 13 within a given timeframe, although most courts discourage repetitive filers. Completing credit counseling with an agency approved by the United States Trustee is also required to successfully file a Chapter 13 bankruptcy and receive a discharge. (For a list of all approved agencies in your state, see the U.S. Trustee’s website and select “Credit Counseling and Debtor Education.”)

Chapter 13s are typically much more complex legal proceedings than Chapter 7s and should never be filed without the assistance of an attorney.

How Much Does a Bankruptcy Attorney Cost?

The role of an attorney in a Chapter 13 bankruptcy is significantly more involved than his role played in a Chapter 7 bankruptcy.  The legal analysis required, amount of time spent in court, length of representation, and complexity are all greater than the responsibilities of a Chapter 7 bankruptcy attorney.  Because of this, a Chapter 13 bankruptcy is typically more expensive than a Chapter 7 bankruptcy.  The fees are also structured differently.

Cost of a Chapter 13 Bankruptcy Attorney

The cost of a Chapter 13 bankruptcy attorney varies geographically, but the typical fee is between $2200 and $3200 for the 3-5 years that the attorney will be representing you.  The good news is that the majority of bankruptcy attorneys do not require the full fee before filing your case, and include the majority of their fees in the bankruptcy repayment plan.  The attorney then gets paid by the bankruptcy trustee after your case is filed, similar to your other creditors.  Some attorneys will only require the $274 federal filing fee to file the case and allow all of their fees to be paid through the plan.  In this case, the Chapter 13 bankruptcy attorney is taking a risk by doing the majority of the work before getting paid and has a strong incentive to get your Chapter 13 bankruptcy getting confirmed and eventually discharged.

Cost of a Chapter 7 Bankruptcy Attorney

For comparison, lets take a look at Chapter 7 bankruptcy fees and how they are structured.  Less legal work and attorney time are required in a Chapter 7 bankruptcy, so the fees are less, but are usually required to be paid-in-full before the case is filed.  Otherwise, the fees owed to the attorney could just be included in the bankruptcy and the attorney would have no way of collecting his fees.  The cost of a Chapter 7 bankruptcy attorney varies geographically, but typically are between $800 and $2500.  The fee is based on the estimated amount of time the bankruptcy attorney anticipates spending on the case.  Payment plans vary, but many firms allow you to retain their services for as little as $100.   This won’t get your case filed, but can give you some immediate relief by allowing you to refer any collection calls to your bankruptcy lawyers office.   After retaining a Chapter 7 bankruptcy attorney you can stop paying any creditors that you plan on including in your bankruptcy.   Hopefully, this will free up some additional funds so you can enter into a payment plan with the bankruptcy attorney on the fee balance remaining.  Payment plans as long as 4-6 months are not unusual.  After the attorney fees and $299 federal filing fee are paid, your attorney will file your bankruptcy in Federal Bankruptcy Court.

Contact us now or use the form to apply now

Copyright © 2019 acfa cashflow | All Rights Reserved