It's not a scenario anyone wants to face – drowning in an ocean of debt. If your financial situation has taken a turn for the worse, and the bills are starting to pile up, you've probably considered filing for bankruptcy.
It's an extreme measure, and despite the negative impact of bankruptcy on credit reports and morale, over 1 million people filed for bankruptcy in 2013. If your financial situation is out of control, and you see no other way to relieve your debt, a good attorney can help you through the complicated process of filing for bankruptcy while protecting your assets as much as possible.
Do You Really Need a Bankruptcy Attorney?
Once you've decided to file for bankruptcy, you might wonder if you really need an attorney. After all, the process is already expensive enough – the filing fee for chapter 7 bankruptcy is $335, and $310 for chapter 13. Attorney's fees can then average over $1000 for chapter 7 and around $3000 for chapter 13. Your financial situation is already dire, so do you really need to pay more money for representation?
While the law does not require you to have an attorney, and many people do choose to file pro se (without a lawyer), it can be risky to do so. In a 2011 report from the US Bankruptcy Court of Central California, 28% of bankruptcy filers did not use an attorney (nationwide, 9% of filers choose to go pro se). In chapter 7 cases filed pro se, 60.9% were successful in discharging debt, compared to 94.5% success in cases filed with an attorney. The rules governing the bankruptcy procedure are very complex, and a mistake as simple as forgetting to list an asset, missing the deadline for filing documents or incorrectly filling out a form can cause you to lose protections or have your case dismissed entirely.
Though the additional cost of a bankruptcy lawyer may feel steep, their expertise may make the difference between fully discharged debt and a dismissed case over a simple filing error.
How to Pick a Bankruptcy Lawyer
When it comes to finding the right bankruptcy attorney to handle your needs, it pays to do some research. Don't just pick a name out of the phone book, or choose the attorney advertising the lowest fee. Instead, try the following:
Look for Expertise
Just as you wouldn't go to a dermatologist for heart problems, you shouldn't go to a lawyer specializing in a field other than bankruptcy for this complicated process. Once you've found a few attorneys who sound promising, set up consultations with two or three to discuss your case. Most lawyers do not charge for the initial consultation, and are willing to answer your basic questions face-to-face.
You'll want to ask how many years the attorney has been practicing, and how many bankruptcy cases he or she has handled. It's a plus if the attorney is a member of a specialty law organization like the National Association of Consumer Bankruptcy Attorneys, as it usually means they have advanced training in the field. You'll also want to know how many bankruptcy cases the attorney handles per month – if it's more than 30, the attorney might not have much time to spend on your case, and you may find yourself shortchanged by a one-size-fits-all process, instead of legal representation tailored to your specific needs.
How Much Will It Cost?
While cost is a bottom-line issue, don't choose your attorney based purely on price. Watch out for firms offering deals that are much lower than the going rate for other attorneys in your area – you might wind up with a lawyer who is inexperienced or unwilling to take the time your case deserves.
The attorney should be upfront about his or her costs. Many bankruptcy attorneys charge a flat rate, which covers all hours spent on your case, time in court and filing fees. In chapter 13 cases, the district courts set a limit as to how much bankruptcy attorneys can charge – this amount varies from district to district, but can be as high as $6,000, though $3,000 is the average. The rates for chapter 7 bankruptcies are not regulated by the court, and range from $500 to $3,500, depending on the complexity of your case.
Be aware that in a chapter 7 case, you will be required to pay the full amount of the lawyer's fees before the case is filed. Otherwise, the attorney would lose his payment in the bankruptcy process. In a chapter 13 bankruptcy, however, you can typically include all or a portion of the attorney's fees in your repayment plan.
Compatible Personalities
While your attorney doesn't need to be your pal, you should feel comfortable working with him or her, and feel a general level of comfort during the bankruptcy process. You'll usually know if the chemistry is there right from the beginning, so if your gut tells you this is not the attorney for you, pay attention.
Filing for Bankruptcy: Chapter 7 or Chapter 13?
While there are several forms of bankruptcy, most individuals filing personal bankruptcy will choose either chapter 7 or chapter 13. In chapter 7 bankruptcies, which are the most common type, non-exempt assets are sold to pay off creditors, and remaining debt is discharged. This excludes non-dischargeable debt such as child support and student loans. While chapter 7 bankruptcy is a good option for those with little income and assets, chapter 13 is a better choice for those with higher income or more significant assets. In a chapter 13 bankruptcy, instead of immediately discharging debt, you'll have a 3-to-5-year plan to pay off creditors, at the end of which most of your remaining unsecured debt will be discharged. A bankruptcy attorney will help you decide which chapter would be most beneficial in your situation.
The Bottom Line
Filing for bankruptcy is an emotionally and financially draining process. Choosing the right attorney can help guide you through the complex procedure, while keeping your stress to a reasonable level.