How Can I Afford to File Bankruptcy?

The changes in the bankruptcy laws in October of 2005 did not have much effect on whether a person could file a case under Chapter 13 or Chapter 7 for the vast majority of people that are considering the filing of a case.  The bankruptcy amendments to the Bankruptcy Code (called “BAPCPA”) did make filing more complicated and time consuming.  Prior to the enactment of BAPCPA, a typical  bankruptcy case required the filing of 25 to 30 pages.  After the enactment of the amendments, lawyers must obtain and review much more information from their clients and the typical filing results in the filing of 45 to 60 pages.  The result has been that bankruptcy lawyers and their staff spend a lot more time on one case than they did prior to October 17, 2005.

The additional time required has resulted in increased court costs and attorney’s fees.  Some clients have told me that they were told that they could not afford to file a bankruptcy case because of the expense.  However, there are ways to hold down the up front cost for our clients, especially in chapter 13 cases.  This can be done by placing most of our attorney’s fees in chapter 13 cases in the chapter 13 plan.  Thus, when a client pays his/her plan payment, that client is paying our attorney’s fees along with the other debt he/she is paying though the plan.  Since for many clients, we are able to reduce the interest rate on his/her auto loan to around 5.0% and on some loans, we can set up the plan to pay the value of the collateral instead of the full loan, many times our clients are paying a plan payment for less each month than they were paying for their auto loan or auto loans before they filed the case.   There are many factors determining how much our client’s plan payment will be, some of which are:

* Income and expenses of our client
* Payoff of the secured loans in some instances
* Value of the collateral in other instances
* Amount of priority debt (most taxes, child support, etc)
* Value of assets that are not exempt (See Exemptions in Mississippi)
* Length of the plan (36 to 60 months, depending upon needs and amount of income in household)

We do not have as many options in chapter 7 cases, but many people can still file after making monthly payments to pay the fees and court costs.  Sometimes, clients file chapter 13 cases until to hold of creditors until they get their tax refund, then convert to a chapter 7 case.

As stated in other places on this website, a person can meet with us for an initial appointment at no cost whatsoever to find out the costs, how the cost can be paid, and the advantages and disadvantages in filing chapter 7 or chapter 13 along with his/her options other than filing a bankruptcy case.

2 Comments

  1. sean
    Posted February 12, 2015 at 9:50 am | Permalink

    I am, by no means, a bankruptcy expert, but doesn’t filing bankruptcy release a person of debt, but also ruin their debt. Would the attorney fees they owe to the bankruptcy attorney be exempt from this debt release? In other words, after they filed bankruptcy would they still be legally required to pay the money they owed their lawyer

  2. robert
    Posted February 12, 2015 at 9:39 pm | Permalink

    Filing a bankruptcy is only the first step in the case. Filing does not release a person from debt, but the Automatic Stay is effective immediately after filing, except in cases in which a person was in 2 prior bankruptcy cases that were dismissed in the last year. The Automatic Stay stops collection activity and stops the creation and/or enforcement of liens on the filing person’s (“debtor’s”) assets.

    The term that is used in bankruptcy cases that eliminates the legal obligation to pay debt is “Discharge”. Upon completion of the bankruptcy case, the debtor, in most cases, receives a discharge of all debt included in the bankruptcy, except:
    1) debt that was reaffirmed in a chapter 7 case (see reaffirm in the Glossary); .
    2) most taxes;
    3) most student loans;
    4) domestic support obligations (child support, alimony or in the nature of either);
    5) debt determined to be non-dischargeable under § 523(a)(2), (4) or (6) of the Bankruptcy Code; and/or
    6) other debts deemed to be non-dischargeable under § 523(a), which rarely come into play.

    Many courts across the country have determined that the fee owed by the debtor to his/her bankruptcy attorney that is unpaid on the filing date is discharged in a chapter 7 case. Some courts have held that the portion of the fee that is related to time spent by the attorney after the filing of the case is not discharged, but the portion of the fee owed for the time which was expended by the debtor’s attorney pre-petition are discharged.

    Our firm and most firms require that our fees be paid in full for a chapter 7 prior to filing the case. However, we do allow clients to pay our fee in monthly payments, but the final payment must be paid prior to filing of the case. During the time in which our clients are paying the fees monthly, most creditors will stop or delay collection activity because the creditors realize that attempts to collect are not going to be effective since the debtor will be filing his/her bankruptcy petition in the near future.

    In Chapter 13 cases, all courts agree that fees can be paid to the debtor’s counsel, post-peition. In most cases, the fees are paid to the debtor’s counsel through the plan along with the creditors that are also being paid through the chapter 13 plan.

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