According to United States Bankruptcy Courts, 1,000,083 bankruptcy cases were filed in the period between June 30, 2014-2015. In these dire economic times, many people may be forced to declare bankruptcy in order to start anew.
But filing for bankruptcy is a big decision and you should carefully consider all of your options before you do so. There are people who file for bankruptcy don’t actually need to and end up going through a difficult process that would have otherwise been unnecessary.
If you decide that you do need to file for bankruptcy, you should know that there are costs associated with successfully navigating the bankruptcy process.
Here’s a quick run-down of the costs you may incur when filing for the two main types of bankruptcy:
Chapter 7 Bankruptcy: $335
Chapter 13 Bankruptcy: $310
This data is from the Fee Schedule of the United States Bankruptcy Court Eastern District of New York. There are other types of bankruptcy, but they are not the ones that are commonly filed by individuals.
But the fees above only cover the fees of filing for bankruptcy. You might also have to pay a professional to help you navigate the process.
Hiring an Attorney
If you are reading this guide and are considering filing for bankruptcy, it should go without saying that you are strapped for cash. If that is the case, you are likely considering doing the whole thing by yourself to save money. Actually, some Chapter 7 filings may be simple enough for you to handle on your own.
In many cases however, things may become too complicated for you to handle.
Chapter 13 bankruptcies and some Chapter 7 cases involve processes that may be too difficult to learn in a short period of time. If you make a mistake during the process, you could end up having your case dismissed.
The success rate of self-representation (Pro Se) in the Central District of California for example, is at 60.9%, while the success rate with attorney representation is at 94.5%. The chances of success for a bankruptcy filing significantly increase with attorney representation.
Another thing you should consider is the opportunity cost of learning about the process yourself. An experienced bankruptcy lawyer will go through paper work much faster than you can.
The time you spend filing the bankruptcy yourself can be spent earning money or trying to find other ways of improving your situation.
According to the National Bankruptcy Forum, attorney fees in New York City range from $1 000 to $2 200 for Chapter 7 bankruptcy. This may vary however depending on the complexity of the case. The national average for a Chapter 13 bankruptcy is about $3 000, but as in the case of Chapter 7 bankruptcy, it may vary depending on the complexity of the case.
What If I Don’t Have Enough Money?
Many of us will at some point go through the experience of having nothing but spare change in our pockets. If you need to file for bankruptcy but don’t have the money to go through the process, there are ways to get the process done for free.
If you can’t afford the filing fee, you can get it waived if your household income is less than 150 percent of the income poverty line.
If you don’t have enough money to get an attorney there are a lot of places that offer free legal assistance to people in need.
The NYC Bankruptcy Assistance Project for example, assists New Yorkers with lower income to get the education and legal help they need. You can also go to the Bankruptcy Resources Website of the American Bankruptcy Institute to find help in your state.
Getting Creditors Off Your Back
Many people don’t often realize the urgency of their financial problems until they start getting phone calls and notices from their debtors. Once reality starts to sink in, many will have to find a good debt management strategy to start paying back their loans.
One of the most popular debt management strategies is debt consolidation. It is often seen as an easy way to simplify your payment by taking out a loan from a third party to pay back all of the smaller loans that you may have taken out.
Here are some of the reasons that people choose to consolidate their debt:
- It takes away the hassle of making multiple payments.
- It lets you preserve your reputation and protect your credit rating.
- It usually gives you lower interest rates than when you pay for multiple debts.
There are, however, some disadvantages to consolidating your debt. The first is you need to have a stable source of income in order to qualify for debt consolidation. It can become even more costly to you if you fail to make your payments. You also have to have good credit history in order to qualify for debt consolidation.
Unlike debt consolidation wherein you still end up paying all of the money you owe, bankruptcy gives you the chance to eliminate or restructure your debt.
One of the best things about bankruptcy is that something called ‘Automatic Stay’ comes into effect. It stops most lawsuits and any collection activity that anybody may be trying to engage.
Through automatic stay, you will be protected from having your utilities taken away, foreclosure, eviction, the collection of overpaid public benefits and multiple wage garnishment.
The two main types of bankruptcy that people usually file are Chapter 7 and Chapter 13 Bankruptcy.
Chapter 7 Bankruptcy
If you file for chapter 7 bankruptcy, your unsecured debt ends up getting eliminated. This includes credit card debt and medical debt. When you file for this type of bankruptcy, a trustee is appointed to sell of your assets that aren’t included in your state’s bankruptcy exemptions.
This type of bankruptcy is best for people who don’t mind living frugally for a few months and just want to get rid of their debt and start anew.
Chapter 13 Bankruptcy
If your income is too high to qualify for chapter 7 bankruptcy, you will have to go for chapter 13 bankruptcy. When you file for this type of bankruptcy, you will have to pay back a at least a portion of your debt through a repayment plan. The main advantage of chapter 13 bankruptcy is that you get to keep all of your property and not only the ones that are up for exemption.
To sum it all up, here are the biggest pros and cons of declaring bankruptcy:
- Protection of automatic stay
- Discharge of most if not all unsecured loans
- Bankruptcy is on your public record
- Your Credit rating takes a hit
Being in a bad financial situation is very stressful. Having creditors constantly contacting you adds to that stress. Bankruptcy is the best way to get creditors off of your back so that you can focus on finding ways to make the best of your situation.
And though you might take a reputation hit, the chance to begin anew is likely worth the effort of building yourself back up again.