- Different entities can file for bankruptcy. For individuals, the option is either to file under Chapter 7 or Chapter 13.
- It’s possible to file for bankruptcy without a lawyer, but it’s not recommended given the complexities of the procedure.
- The cost of bankruptcy attorneys depends on the jurisdiction, specific circumstances of the case and where you live (lawyers tend to cost more in large metropolitan areas).
If you’ve started considering the option of bankruptcy, you might already be feeling overwhelmed with piles of debt, “past due” statements or even eviction notices. Fortunately, if bankruptcy proves to be the right solution for your predicament, you don’t have to go it alone.
Whether or not you think you need a bankruptcy lawyer, it’s a good idea to hire one. A qualified attorney can help you determine whether to file for bankruptcy and for what type, as well as guide you through the process to avoid pitfalls along the way.
Let’s dive deeper into bankruptcy basics, how legal representation can help and how to find a reputable lawyer.
Inside this article
The basics of bankruptcy
In a perfect world, you have a debt repayment plan and can follow it promptly. But the world is not perfect. There may be instances where the amount of debt feels insurmountable, and no amount of financial diligence or discipline is enough to help you stay on track. In this scenario, and after consulting with a lawyer, you might consider filing for bankruptcy.
Filing for bankruptcy can potentially clear your debt. You can file bankruptcy as an individual, corporation or municipality. As an individual, you can apply for bankruptcy under Chapter 7 or Chapter 13 of the United States Bankruptcy Code.
Chapter 7 is the process of liquidating your assets to pay off as much of your debt as you can (and receiving a discharge of all remaining debt).
Chapter 13 allows for an “adjustment of debt,” where you propose a new repayment plan to creditors.
How to determine whether to file for bankruptcy
Whether or not you should file for bankruptcy depends on several factors. They include:
What kind of debt you owe (and how much)
Which debt account you’re having the most trouble with
What kind of assets you own
Whether you have any properties that are about to be repossessed or foreclosed
Given the variability of these factors, there are many cases where filing for bankruptcy might—or might not—be the best move.
|When bankruptcy might be unwise||When it might make more sense|
|There are certain types of debt that bankruptcy can’t discharge. Court ordered alimony and child support, reaffirmed debt and any money owed to the government fall into this category. If one of these debt categories is the main cause of your predicament, then filing for bankruptcy isn’t necessarily going to ease your burden.||If your debt doesn't fall into any of the categories on the left here, and you’re about to have your homes foreclosed, your car repossessed or your wages garnished, filing for bankruptcy could be the right choice. Keep in mind that if you’re still making payments on borrowed assets (like a house or vehicle), you’ll still have to make payments to keep them as collateral.|
When it’s the correct course of action, filing for bankruptcy can give you an opportunity to incrementally rebuild their financial life.
For example, you can work on slowly improving your credit score year by year. In fact, “most people who apply for bankruptcy end up with a better credit score than they’ve ever had before,” says Marc Dann, founding partner of Dann Law and the Ohio Attorney General between 2007 and 2008.
That said, experts typically recommend filing for bankruptcy as a last resort because it has legal and financial implications. They include:
You’ll likely lose property.
Your credit score and report could improve significantly over time, as Dann says, but it will also suffer immediately and perhaps for years afterward.
Your ability to secure rental property, a mortgage, loans and even a job will be negatively impacted (at least in the short-term).
Your ability to hold government positions that require a high-security clearance will be limited.
Whether to file under Chapter 7 or Chapter 13
If applying for bankruptcy is right for your situation, the next step to consider is whether to do so under Chapter 7 or Chapter 13. The first thing to consider is your eligibility—only those who earn less than their state’s median income level can file for Chapter 7.
There are other differences to consider between these two filing options.
|Chapter 7||Chapter 13|
|You can apply once in an eight-year period||No limit on the number of times you can file|
|Your credit report will note your filing for 10 years||Your credit report will reflect your bankruptcy for seven years|
Fortunately, a bankruptcy lawyer can help you determine which type of bankruptcy proceeding is best for you.
Should you hire a bankruptcy lawyer?
You’re not required to hire a bankruptcy lawyer to file for bankruptcy, but the U.S. court system strongly recommends that you at least seek the advice of a qualified attorney.
A bankruptcy attorney can give you advice on the following:
Whether applying for bankruptcy is the appropriate action for you
Whether you should apply under Chapter 7 or Chapter 13
Whether or not your debt can be cleared
Whether you’ll be able to keep your car, home or other property after you complete the filing
The specific tax consequences of filing for bankruptcy
Whether you should continue to be paying your creditors in the meantime
If you go without a bankruptcy lawyer, make sure you’re detail-oriented with record-keeping. Dann finds that people tend to be “generous with themselves” when filing for bankruptcy in terms of assessing their assets and liabilities. You might forget to disclose your federal tax return, for example, causing your case to be delayed or dismissed. Having a lawyer look over your shoulder can make sure the math is done correctly.
With Chapter 13, it becomes even more complicated because you would have to put forward a repayment plan toward your debt. The judgment around calculating your net income makes a huge difference financially.
“Even for lawyers, that’s a challenging piece of work,” says Dann.
“When you have assets, when you have complicated finances, when there is a garnishment or a lawsuit pending, there are things that need to be done before you need to file Chapter 7 or Chapter 13,” he adds. “That can make a difference in whether or not the creditors get a lien in your home.”
How much do bankruptcy lawyers cost?
The cost of bankruptcy attorneys can vary according to a few factors. They include:
The state you’re filing in
The complexities of your case
The size of the city or state where you live
Dann has practiced across New Jersey and Ohio, and says that in larger cities, the cost can be between $2,000 to $4,000. However, he adds that bankruptcy lawyers in smaller communities tend to charge less, with the average being closer to $1,500.
Of course, when it comes to your search for legal aid, compare pricing from multiple lawyers so that you don’t end up overpaying.
What happens after you hire a bankruptcy lawyer
Once you hire a bankruptcy attorney, you’ll probably be asked to sign a retainer that outlines the services that your attorney will provide and what they will cost. They’ll ask questions about the specifics of your case, and you can expect them to tell you whether it’s in your best interest to file for bankruptcy or choose an alternate route.
A bankruptcy lawyer will also recommend whether you should opt for a Chapter 7 or Chapter 13 filing. They’ll outline the potential risks and consequences of each option.
You can expect a bankruptcy lawyer to…
Guide you through the filing process step by step, helping you to complete and file necessary paperwork
Be present during any court proceedings
Direct you to enroll in a pre-bankruptcy credit counseling session and a post-bankruptcy management course
All in all, filing for bankruptcy can be a daunting process, but it doesn’t have to be. Hiring a bankruptcy lawyer can help you ease the process and give yourself the best chance of a successful filing.
How to find a bankruptcy attorney
When you’re looking for an attorney, make sure that the person you’re looking to hire is actually a qualified legal professional. There are many so-called bankruptcy petitioners that charge a lot less than attorneys but are not authorized to give you legal advice. As a result, you won’t be able to sue them for malpractice if something goes wrong.
To find a qualified bankruptcy lawyer, start with a professional directory. Each of the following associations provide resources for finding attorneys, wherever you live and whatever your needs may be.
Another tip is to use an online referral system. Some state bar associations, like the Massachusetts Bar Association and the Association of the Bar of the City of New York have a referral service on their website.
As you’re vetting candidates to be your legal representative, you might prioritize lawyers with whom you have a rapport. However, Dann cautions against relying on a lawyer who might be a close friend or family but aren’t experienced with bankruptcy procedures.
“You might think that they’re doing you a favor,” he says, but if bankruptcy is not their area of practice, then “they’re not really doing you a favor.”
Interview multiple firms or lawyers that have had experience with bankruptcy cases. You might check Google and Yelp reviews, too.
Tip: Before hiring a bankruptcy lawyer, ask if they will be prepared to act on your behalf to stop creditors from hounding you. They would request an “automatic stay” or “discharge injunction” to keep debt collectors at bay once you file for bankruptcy. “I’m always surprised by the number of bankruptcy firms that aren’t willing to do that,” says Dann. “If your attorney won’t do it, reach out to another one who might.”