Bankruptcies largely affect individuals and households – only about three percent of bankruptcies today are incited by businesses, compared to 13 percent in 1980. While bankruptcies have been on a decline since 2011, as the country began to recover from the devastating effects of the financial crisis, 772,646 cases of bankruptcy were filed in the months between March 2018 and 2019 – a far cry from the nation’s peak of nearly 1.6 million bankruptcies, recorded in 2010, yet still a substantial number.
Most cases of bankruptcy are not caused by extreme spending, massive student debts, or poor investment choices. In fact, most cases of bankruptcy are a matter of plain bad luck: medical debt is cited as a major factor in an estimated 66.5 percent of bankruptcies, and so, most people who are forced to file for bankruptcy must do so due to outstanding medical bills. These bills do not need to be exorbitant to break the bank – many Americans struggle to create a cash cushion for medical emergencies, and 75 percent claim they live paycheck to paycheck.
As such, the entire process of filing for bankruptcy is universally distressing. So why add onto a mountain of costs with yet another one, in the form of a paid attorney?
Why You May Need a Bankruptcy Lawyer
It has true that people who go on to file for bankruptcy are generally strapped for cash as it is, and it would make little sense to add to that with yet another expense. It might even be a non-starter for you. But consider this:
It is not actually overwhelmingly expensive to get started with a bankruptcy lawyer, and the benefits are immediate and drastic. Most offer a free consultation, and that alone might even help you out of your situation without the need to file for bankruptcy, as there are alternative measures. Consultations can also help local attorneys determine whether you may be fit for legal assistance, through the Legal Aid Association of California, or a firm’s pro bono program.
Choosing to go into a bankruptcy without a lawyer might not be a bad idea in certain cases. When a bankruptcy is very straightforward, filing it without a lawyer can save you both time and money. But there are plenty of cases where the circumstances are not straightforward.
For one, an attorney can help you find the best possible path forward through what is both an emotionally distressing and potentially complex field of the law. If bankruptcy is your best option to pay off outstanding debts, then making the critical choice between a Chapter 7 or Chapter 13 bankruptcy can be made easier through professional guidance.
In either case, it is important to take note of how to best make use of your exemptions, which differ from state to state. In California, individuals must choose between one of two exemption systems, which both overwrite the federal bankruptcy exemption system.
Even once you have chosen how to proceed with your case, there are other decisions to make that can help you get a better fresh start after all this is over, potentially saving you thousands of dollars in the long-term, and plenty of frustration. If you aren’t sure, then opting for a free consultation can give you a better idea of whether you should pursue legal help or tackle your bankruptcy pro se.
Affording Legal Representation
The costs of filing a bankruptcy (with or without legal help) are $335 for a Chapter 7 bankruptcy, and $310 for a Chapter 13 bankruptcy (as of 2019). These filing fees cannot be lowered. When filing for bankruptcy, you may also have to count on other costs, such as the administrative costs for your bankruptcy trustee (the person in charge of your case), as well as legal costs, and miscellaneous fees.
Lawyers will charge whatever the market dictates, although as mentioned previously, there are ways to avail for low-cost legal help, and under certain circumstances you may even receive pro-bono help. While free consultations exist, they are not always a given.
The total costs of bankruptcy differ heavily from case to case, depending on how many miscellaneous costs are incurred during the course of the bankruptcy. Some fees may be waived if the judge allows it, or if you are eligible. Some of the costs of filing for bankruptcy can also be paid in installment, including filing fees and attorney costs.
There are many ways to file for individual bankruptcy, although most people typically choose between Chapter 7 and Chapter 13 bankruptcies. These chapters are set by the Bankruptcy Code. Others included in the code are:
- Chapter 11 (for businesses that wish to continue operating)
- Chapter 12 (for family farmers/fishermen)
- Chapter 15 (for foreign cases)
- Chapter 7 (liquidation) and Chapter 13 (reorganization) bankruptcies are typically most relevant for individuals pursuing bankruptcy in California.
- The main difference between Chapter 7 and Chapter 13 bankruptcies is that Chapter 7 bankruptcies wipe out your debt but require more extensive liquidation. These bankruptcies are generally for individuals with no means to pay off their debts.
- Chapter 13 bankruptcies are meant for individuals who need help with reorganizing their finances in such a way that they can pay off at least a portion of their debt through a determined repayment plan. Chapter 13 is often the only option available for those who earn too much money to qualify for Chapter 7 bankruptcy.
- Major differences include that Chapter 13 bankruptcy debtors may keep their property but must pay the value of all non-exempt assets to unsecured creditors, while the trustee overseeing a Chapter 7 bankruptcy can sell the non-exempt property a debtor still possesses to pay creditors.
Choosing a Bankruptcy Lawyer
You have a difficult choice to make. But by keeping in mind the most important factors, you can determine whether to go through with your choice of legal representation. Here are a few factors to consider:
- The first factor is cost. With the costs ahead, how much can you spare for legal help? If you can afford a lawyer, then having one is certainly worth it. Their expertise will help you save both money and time in the long run.
- The second factor is the quality of the legal help available. Reputations, expertise, track records. Are they passionate about their work? Bankruptcy law is about helping people get back on their feet at their direst hour, and many who specialize in it are proud of their work.
- The third would be the initial consultation. Do you like working with this lawyer? First impressions are important, and you will want someone you can work with.
Filing for bankruptcy is no easy thing and having help can make all the difference. Choosing the right help might not be easy, but it is important to take your time in making the right choice.