Our Bankruptcy Attorney Blog

Obviously the key to avoiding bankruptcy is to live within your means and to be financially responsible. The changes to the bankruptcy law implemented in 2003 have largely done away with the notion of filing for Chapter 7 bankruptcy as a convenient means of correcting financial irresponsibility or serving as an “easy out” for scofflaws. Instead, bankruptcy is has lost much of its appeal as an easy second chance. Further, bankruptcy was never really designed to serve as a final step before total insolvency, instead it was meant to be a tool that could be used to prevent the bankrupt person from facing utter destitution. Nevertheless, the social stigma around bankruptcy means that most people do not even file until it is far too late to really save them from utter destitution.

The primary cause for bankruptcy today is some sort of disaster, frequently a medical one, such as a major debilitating accident or the onset of some major condition that requires extensive – and expensive – prolonged medical care. A fine example of this being someone caught in a major automobile accident or being diagnosed with some form of cancer. While the expense of such disasters is usually offset by state programs in most modern industrial countries, such is not the case in the United States, which is virtually alone in the developed world when it comes to having “medical bankruptcies.” The only real way to avoid this sort of bankruptcy is to spend the money for truly comprehensive full coverage medical insurance.

People facing other sorts of financial troubles can frequently find alternatives to bankruptcy which may or may not be the right decision to make, depending on the circumstances. Many alternatives exist today, from debt consolidation loans and debt forbearance agreements for people basically in good financial shape but facing temporary difficulty; to comprehensive debt renegotiation (debt settlement or loan modification). In an effort to mitigate the recession that began in 2009, the government also offers a wide range of options meant to help people facing serious debt issues avoid default and bankruptcy.

One of the interesting revisions to the bankruptcy procedure that was introduced in 2003 was the requirement that before anyone can even file the initial petition for bankruptcy protection, they have to undergo credit counseling through a government-approved credit counseling agency. These agencies issue certificates after the session has concluded that has to be presented along with the initial application for bankruptcy protection with the court. At the time of passage many people decried this because it amounts to an additional expense added to the bankruptcy process. Although most of these credit agencies are non-profit, they still charge fees for the counseling session and the certificate required to file for bankruptcy.

While the opponents were correct – the requirement does amount to an extra charge required to file for bankruptcy – at the same time it means that a professional looks over each applicant’s full financial situation before they file for bankruptcy and offer alternatives when they are available. In fact, if the claim appears spurious or dubious, the credit counselors can even refuse to issue the certificate saying that the person underwent credit counseling, though this is not particularly common. The result of this law is that anyone considering bankruptcy has to sit with a professional who looks over their entire financial situation and offers alternatives to bankruptcy when they are viable or preferable. Although it is completely impossible to say how effective this policy has been at stopping bankruptcy filings, the fact remains that if there is a good alternative to bankruptcy, the credit counselors should make the borrower aware of them before a petition is ever filed in bankruptcy court.

Bankruptcy law is a very specialized field in the United States and there is an entire division of the legal profession that specializes in it exclusively. The reason that this specialization happens is that bankruptcy law is extremely complex and though simple bankruptcies may not require expertise, it is better to have this expertise available should something unexpected occur. The bankruptcy courts are notorious for expecting anyone dealing with them to know what they are doing and do it correctly; therefore they tend to be very unforgiving of mistakes. The smallest error can result in your entire case being dismissed out of hand. Here are the top three reasons to consider hiring a bankruptcy attorney:

First there is simply the matter of getting the process down correctly. Bankruptcy law in complicated and most of it involves filing various documents with various officers of the court at various times through the process. Further, the bankruptcy courts are very bureaucratic and expect anyone filing documents with them to know what they are doing. Failing to file a document in the right sequence, filing a document without the proper permissions and approvals, and other minor mistakes can result in the entire case bing tossed out of court altogether. On top of this, there are now restrictions on how often someone can refile, so if you ruin your filing, it will be a while before you can try again.

Secondly, there is the very real issue of accidents and mistakes being made inside your filings. Failing to enter your exempt assets on all the right forms can result in your exempted property suddenly losing its exemptions and being up for grabs to your creditors. Similarly, failure to properly disclose all of your assets, holdings and income can potentially result in criminal prosecution as a deliberate deception. As noted above, the bankruptcy courts generally expect anyone filing documents with them to know what they are doing and they show very little understanding for mistakes. A professional can certainly help you avoid these kinds of very serious mistake possibilities.

Third and finally there is always the possibility that one or more of your creditors will decide to contest some of your information or claims, turning what should be a simple operation into a much more complex one.  Frequently, the creditors will argue that you do in fact have the possibility of paying back their debt over a long term repayment plan (as opposed to having the debt discharged). When this happens, the petitioner (you, the person filing) really needs to have an aggressive attorney representing them that can argue – successfully – for a full discharge of the debt. Other creditors may try mother tricks, espcially if they know you are filing for bankruptcy long in advance, so it can really pay to have someone on your side that can address these concerns as they happen.

Not all people really need a bankruptcy attorney, especially ones that are already utterly destitute, but for everyone else, having an attorney is a good idea. The bankruptcy courts have no patience for anyone wasting their time and even the court’s official website strongly suggests that all petitioners hire an atorney that specializes in bankruptcy law.

Although you may not know it, bankruptcy law is a very complex specialization that most basic attorneys are not really qualified to deal with. Most serious bankruptcy attorneys specialize exclusively in this field simply because it is so exacting and complicated that this degree of specialization actually makes sense. The first thing you have to determine is whether or not you even need an attorney. If you have no money, no assets, and no income, then you can probably handle the matter yourself. However, if you own a home or have other assets, an attorney can make a huge difference on how “well” you bankruptcy goes. Assuming you do need an attorney,  how can you tell if an attorney is really qualified to help you are not?

Perhaps one of the best ways is to look at the local bankruptcy court’s trustee panel as well as its debtor and/or creditor committees. These entities are all attached – with standing – the the court itself in a subsidiary role and are manned by experienced bankruptcy attorneys in the area with comprehansive experience in the local court. This is probably the best way to find the best qualified bankruptcy attorneys – or their firms – in your local area. Related to this, one can also look for local members of some of the fields professional associations such as the National Association of Consumer Bankruptcy Attorneys (www.nacba.org)  or the American Bankruptcy Institute (www.abiworld.org). Frequently you can get this infomration from the local legal aide society in your area or from non-profit debt and credit counseling agencies. If you opt for the latter, be sure to use non-profit organizations, as the for-profit ones may have a deliberate agenda of misleading you.

After you have a list of possible bankruptcy attorneys, the next thing is to look at their general operation. Unlike many courts, the bankruptcy courts tend to be small, fairly personal matters between the judges and the attorneys (the bankruptee rarely has to attend), so it is essential to choose an attorney that has a good standing relationship with the court. The bankruptcy attorneys that are in good standing understand the value of this and charge for it, so more often than not these are not “budget” attorneys, they will have excellent creditentials, and will probably have very nicve, professional offices. The “ambulance chasers” of bankruptcy law are likely to be little more than document filers for you and this you can do yourself.

Finally, do not be shy. Most serious bankruptcy attorneys will allow you to witness their work on another case from the gallery, just to let you see how they perform. Similarly, feel free to ask questions. Generally speaking, most bankruptcies are fairly simple matters for the experts, so it is entirely possible that you will not actually see your attorney until your day in court. Most of the documantation and filings can be – and usually is – handled by paralegals and legal aides as opposed to the attorney himself. While this fact leads many people to believe they can do this just as easily, more often than not they are mistaken in this assumption.

When filing bankruptcy there are many things that should be taken into consideration before doing so. This is why it is important to not wait until you are absolutelyIf  destitute to file for bankruptcy. Although most of the associated fees can be waived by the court, this becomes a whole legal process in its own right, before you can even file your basic petition for bankruptcy protection. On average, the normal amount that individuals spend to file for bankruptcy is between two and five thousand dollars. While all of this can be waived or avoided, the result is frequently a disaster for those that attempt to do so.

As a matter of law, before you are allowed to file for bankruptcy at all you have to receive credit counseling from a government-approved credit counseling agency 180 days or less from the date of the filing. These credit reporting agencies review your overall financial situation and determine whether or not bankruptcy is the right option for you. Assuming they decide that bankruptcy is a good option, they then issue you a certificate confirming that you received the counseling services. This certificate has to be filed with your bankruptcy petition and failure to do so guarantees that your petition will be flatly rejected from the outset. Although most of these credit counseling agencies are non-profits, most of them still charge basic fees for the review and for the certificate, and obviously these fees have to be paid up front.

After you have your certificate, you have to keep in mind that the bankruptcy process itself has a flat fee: $299 for a Chapter 7 filing or $274 for a Chapter 13 filing. Technically speaking, these fees can be waived by the court under the forma pauperis process, but this involves filing a separate set of forms and being able to document the claims contained therein. Further, generally speaking the courts rarely waive the fees altogether. Most of the time the court will simply impose a payment plan that allows the petitioner to pay the filing fee over installments instead of all at once. Even when the court decides to waive the fees, frequently it will only waive a portion of them, not all of them. Today, it is exceedingly rare to see anyone have all of their fees waived by the court.

Finally there is the big question of whether or not to hire a bankruptcy attorney to represent you. Debtors are allowed to represent themselves and present their petition to the court pro se, but this is almost always a bad idea. Quite simply, bankruptcy law is extremely complex and the courts are exceedingly bureaucratic, meaning that everything has to be filed properly or the whole case is simply denied and thrown out. Further, there are now restrictions on when a person can re-file their case if they have had a previous one thrown out for some technical reason. If you literally own absolutely nothing and have no real hope of acquiring anything in the foreseeable future, a pro se case may be worth the effort. Anyone that owns property, especially complicated property like real estate, should seriously consider hiring a bankruptcy attorney. Failure to do so can result in either failing to get the full benefit of the bankruptcy (despite getting the full downside) or can even result in a total financial disaster.

Although it is not always the case in other countries, in the United States, filing for bankruptcy is usually considered a measure of last resort and carries a significant social stigma with it. Essentially, filing for bankruptcy is a public admission of your inability to meet your responsibilities and carries the implication of utter failure. Nevertheless, the bankruptcy option is not really meant to operate this way and there are certainly times when bankruptcy makes good sense and is a better option than the alternatives available.

Perhaps the worst aspect of bankruptcy is the fact that it shows up on your credit report and stays there for at least ten years. Further, even if significant portions of your debts are discharged by the court, this does not necessarily mean they will be removed from your credit report. Instead, you have to manually have the discharged debts removed. There have been many cases of people who did file for bankruptcy and had a lot of their debt discharged, but never bothers to contact the credit bureaus about it. The result was that not only did all of the old debt remain on their credit report, but so too did the bankruptcy, resulting in an even worse credit rating than they had previously.

Another significant problem with filing for bankruptcy today is that it does not discharge as much debt as it used to and many debts are simply exempted from the process altogether. If your primary debts are student loans or tax liabilities, these are not likely to be discharged at all. Even the primary target debts for many filers – revolving credit accounts – are not always immediately discharged if the court determines there is a reasonable possibility of the debtor paying back the debt over a set period of time. The types of debt and your basic economic situation plays a big role on what the court will agree to discharge and what it will not. The old days of having almost everything swiped clear with the pounding of a gavel are pretty much long over.

One of the key changes to bankruptcy law that was implemented in the early 2000s was the requirement that anyone wanting to file for bankruptcy has to receive credit counseling from an approved credit counseling service. The basic idea here was to deny the bankruptcy option to people that had better alternatives available. These approved credit counseling agencies are generally non-profits and are familiar with all of the potential alternatives to bankruptcy. Therefore this process somewhat culls the ranks of those considering bankruptcy and provides tangible alternatives where they are possible. In fact, some of these credit counseling agencies will deny you the certificate of compliance that you require in order to even make the initial filing for bankruptcy if they feel you have viable alternative options available.

Bankruptcy is never a great idea and most people that can avoid it do so. The result is that those people that do file for bankruptcy and get some or all of their debt discharged are deemed the worst of the worst borrowers and are even seen as dishonest by many people. If you can avoid bankruptcy, it is usually in your best interest to do so and the credit counselors will give you a good idea of what alternatives may be available to you.