Affordable Bankruptcy: How to Discharge Your Debt on the Cheap

Affordable Bankruptcy Student-past-due-300

Bankruptcy Alternatives, or the Lack Thereof

Bankruptcy can be affordable.  Fees and costs are discussed at the bottom of this article.  However, prior to filing for bankruptcy, individuals should consider whether there are any other viable alternatives.  In fact, the Bankruptcy Code requires debtors to act in good faith to attempt to satisfy their debts.  Thus, the first step for individuals with large debt loads is to consider whether there are any alternatives to their current situation.
[quote style=”boxed” float=”right”]”the threat of bankruptcy can provide significant leverage against creditors”[/quote]
The most important aspect to keep in mind is that the threat of bankruptcy can provide significant leverage against creditors.  In most situations, unsecured creditors (such as credit card companies) will not see a dime if you file for bankruptcy.  Therefore, if you threaten to take bankruptcy, and take concrete steps indicating you’re serious, the creditor is likely to negotiate a significant reduction in the principal outstanding as long as you make some material lump sum payment.  Some debtors start by offering ten cents on the dollar for my entire outstanding credit card balance. See our post of bankruptcy alternatives for more information.

Chapter 7 Bankruptcy

Occasionally, there are no other options for the debtor.  The good news is that most debtors qualify for Chapter 7 bankruptcy, which allows debtors to dissolve all debts.  Chapter 7 is generally reserved for individuals with little or no assets.  It is referred to as “consumer bankruptcy.”  Chapter 7 is also referred to as a “liquidation” because in most cases creditors don’t get a dime.  All property of the debtor is sold at an auction, or is otherwise exempt under state or federal law.  Real estate is often liquidated at a price that will facilitate a quick and easy sale.

A chapter 7 bankruptcy case is a proceeding under federal law in which the debtor seeks relief under chapter 7 of the Bankruptcy Code.  Chapter 7 is that part (or chapter) of the Bankruptcy Code that deals with liquidation.  The Bankruptcy Code is a federal law that deals with bankruptcy.  A person who files a chapter 7 case is called a debtor.  In a chapter 7 case, the debtor must turn his or her nonexempt property, if any exists, over to a trustee, who then con­verts the property to cash and pays the debtor’s creditors.  In return, the debtor receives a chapter 7 discharge, if he or she pays the filing fee, is eligible for the discharge, and obeys the orders and rules of the bankruptcy court.

A chapter 7 discharge is obtained by filing and maintaining a chapter 7 bankruptcy case and being eligible for a chapter 7 discharge.  However, not all debts are discharged by a chapter 7 discharge.  Certain types of debts are by law not dischargeable under chapter 7 and debts of this type will not be discharged even if the debtor receives a chapter 7 discharge.  More information on Chapter 7 bankruptcy is available on another post here.

Handbook on Consumer Bankruptcy

Qualifying for Chapter 7

In order to obtain a chapter 7 discharge, the debtor(s) must qualify under the “means test.”  Means testing is a method of determining a person’s eligibility to maintain a chapter 7 case.  Under means testing a person whose current monthly income from all sources multiplied by 12 exceeds the median annual income, as reported by the U.S. Census Bureau, for the person’s state and family size, must show that he or she is not able to pay a minimum of $117.08 per month for 60 months to his or her unsecured creditors from his or her disposable monthly income in order to be eligible to maintain a chapter 7 case.  Disposable monthly income is a person’s current monthly income from all sources less the person’s permitted current monthly expenses.  The chapter 7 case of a person whose disposable monthly income is such that he or she is deemed to be able to pay $117.08 per month or more to unsecured creditors for 60 months will be dismissed or converted to chapter 13 unless special circumstances exist.  Means test calculators are available on the internet.

Cost of Filing Chapter 7

[highlight]The filing fee is $306.00 for either a single or a joint case.[/highlight]  The filing fee must be paid when the case is filed.  However, if the person filing can show that his or her income is less than 150 percent of the official poverty line and that he or she is unable to pay the filing fee, the court can waive payment of the filing fee.  If the person filing is unable to pay the entire filing fee when the case is filed, it may be paid in up to four installments, with the final installment due within 120 days.  The period for payment may later be extended to 180 days by the court, if there is a valid reason for doing so.  Unless payment is waived by the court, the entire filing fee must ultimately be paid or the case will be dismissed and no debts will be discharged.

Thus, in order to obtain a Chapter 7 discharge, a debtor must pay the $306.00 filing fee.  A debtor may also hire a bankruptcy attorney.  Although it makes the process much easier, retaining an attorney is not necessary.  [highlight]Most attorneys charge between $1000 and $500 to file a Chapter 7 case.[/highlight]  Search online for a local experienced bankruptcy attorney in your area.

Argyle’s Handbook on Consumer Bankruptcy

Argyle’s Handbook on Consumer Bankruptcy is written for attorneys practicing bankruptcy law, but it is often used by individuals contemplating bankruptcy because of its comprehensive and easy-to-read nature.  It contains step-by-step information guiding you through the Chapter 7 bankruptcy process.  It comes complete with already filled-in forms to assist you with the process.


I’m thinking if you’re backed into such a corner that you’re considering filing for bankruptcy, you probably wouldn’t be able to pony up the $1000+ it would cost for an attorney… you’re probably better off just filing it yourself. There’s enough information out there on the web to make the process manageable, at least.


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