Bankruptcy attorneys must provide practical and timely advice to their bankruptcy clients. This means understanding the mental anguish of the average bankruptcy client. Most clients contemplating bankruptcy are highly emotional, and often depressed. Our jobs are not only to counsel our bankruptcy clients on their alternatives, but also to allay their concerns and show them that the Bankruptcy Act really does provide a “fresh start.”
That fresh start, however, is not free. The average bankruptcy now costs $1,500, only part of which is the attorney fee. Bankruptcy attorneys continue to search for more efficient ways to practice limited resources.
April is financial literacy month. In this spirit, Argyle publishing encourages all attorneys to take a bankruptcy case pro bono, and make a difference in someone’s life. Below is a recent article from a non-lawyer to debtors contemplating bankruptcy. It provides some insight into a potential bankruptcy client’s thoughts, advice that is well-taken at the initial bankruptcy consultation.
The following is a recent article by Andrew Housser posted on Myfoxphilly.com.
“April is Financial Literacy Month, and one of the most confusing areas for consumers who are struggling with debt is bankruptcy. Some people mistakenly believe that if they get into financial trouble, they can simply file for bankruptcy to get out. Others are hesitant to take any action even when they are drowning in debt that is literally destroying their financial well-being and peace of mind. Here is the real story about bankruptcy.
Since 2010, the number of Americans who file for bankruptcy protection has steadily declined. In 2012, about 1.2 million consumers declared bankruptcy. This is down slightly from 1.4 million filings in 2011. If you are considering joining them, understand that it is a serious process, and become familiar with these facts first.
1. Know your options. Chapter 7 bankruptcy typically requires you to liquidate or sell off assets to pay back creditors. Sometimes, these could even include a house or car. A successful Chapter 7 liquidation eliminates most debt, except child support, alimony, certain tax debts and student loans. However, filing for Chapter 7 protection became harder with the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. This law increased the requirements for filing bankruptcy. Consumers who want to file Chapter 7 now must pass a “means test” to prove they cannot repay their debts. In contrast to Chapter 7, a Chapter 13 bankruptcy reorganizes debt. Filers with higher incomes more often qualify for Chapter 13 bankruptcy. It requires consumers to sign on for a debt repayment plan, which can take up to five years. Chapter 13 carries a greater likelihood of allowing you to keep your house, car or other assets.
2. Filing for bankruptcy costs money. The average cost for filing for Chapter 7 bankruptcy protection can be more than $1,500. Chapter 13 bankruptcy filings cost slightly less, about $1,000. Filing paperwork in federal court costs an additional $300, although some judges might waive this fee if you show you cannot afford it. Fees for mandatory credit counseling and debtor education programs are also charged. These range from $50 to $100 per program. In general, consumers filing are wise to use the services of a bankruptcy attorney. A small number of people may find a lawyer through a local bar association who will provide free (pro bono) legal services. To avoid attorney costs, you may be tempted to go it alone. But the bankruptcy process is complicated, and if you make a mistake, your case can be dismissed.
3. You must complete credit counseling and debt education. Before you file for bankruptcy protection, you must meet with an approved credit counseling organization. A credit counselor will evaluate your financial situation, discuss alternatives to bankruptcy and help you develop a budget. If you do move ahead and file, you must complete a debtor education program. Debtor educator will teach you how to develop a budget, manage money and use credit wisely. Any credit counseling and debtor education organization you use must be approved by the U.S. Trustee Program, as these are the only organizations authorized to issue required certificates of course completion. Both credit counseling and debtor education sessions can take place in person, online or via phone. Sessions may last from one to two hours. You can find lists of approved credit counseling agencies and approved debtor education providers at the U.S. Department of Justice website or via the bankruptcy clerk’s office in your district.
4. Your credit report will take a severe hit. Whether you file for Chapter 7 or Chapter 13 bankruptcy, your action can negatively affect your credit scores for up to a decade. With Chapter 13, even though you are paying back debt on a repayment plan, notice of the filing will stay on your credit report for seven years after the repayment period ends. Chapter 7 bankruptcy remains on your credit report for 10 years. It is possible to qualify for new credit during this time – but the interest rates you receive likely will be high. Also, if you file, but do not complete the bankruptcy process, the fact that you filed still can negatively affect your credit report.
Filing for bankruptcy protection is a serious step. Before proceeding, investigate all options. Many people are surprised to learn that debt repayment terms often are better with debt settlement (also known as debt resolution) than with a Chapter 13 filing. Whichever option you choose, the most important consideration is to learn important new skills to make the most of your fresh financial start. With a good budget and better financial know-how, you can work toward a more stable financial future.”
For more information on filing consumer bankruptcy, see Argyle Publishing’s Consumer Bankruptcy Handbook (2013).