How Can Bankruptcy Attorneys Help You Discharge Your Debt?

Being in debt can be a super stressful and lonely experience. The constant calls from creditors, piling up bills and uncertainty of the future can really take a toll on you. But bankruptcy is a legal way to get back in control of your finances and start fresh. However, navigating bankruptcy laws can be overwhelming without professional help. That’s where a bankruptcy attorney comes in.

In this article, we’ll discuss how bankruptcy attorneys can help you get out of debt, the benefits of hiring one, and what you need to know before you file.

How Bankruptcy Attorneys Can Help

A bankruptcy attorney will guide you through the entire process so you can make informed decisions and avoid mistakes.

Here’s how:

Personalized Financial Analysis

An attorney will review your financial situation to determine if you qualify for Chapter 7 or Chapter 13 bankruptcy. They will review your debts to see which ones can be discharged and how to manage non-dischargeable debts. They will also explain property exemptions so you can protect your assets from being seized.

Support Through the System

Filing bankruptcy involves a lot of paperwork and deadlines. An attorney will make sure all documents are filled out correctly and on time. They will represent you in court and creditor meetings, negotiate on your behalf and communicate with creditors once your case is filed.

Ensuring Compliance with Bankruptcy Laws

Bankruptcy laws are quite complex and one small mistake may send your case into delays or even dismissal. An experienced attorney is capable of effectively navigating such laws and is well-equipped to stay abreast of legal changes that may affect a case to ensure compliance with current regulations.

Debt Relief Success

Depending on the type of bankruptcy, you can eliminate unsecured debts or create a manageable repayment plan. Attorneys provide realistic timelines and guide you through each phase until your debts are discharged, helping you achieve financial relief.

Benefits of Hiring a Bankruptcy Attorney vs. Filing Yourself

You can file bankruptcy without an attorney, but it’s much better with one. Filing with an attorney means expert legal advice, accurate and timely paperwork, protection from creditor harassment, asset protection, knowledge of current laws and exemptions, representation in court and creditor meetings, better outcomes and peace of mind. Filing yourself (pro se) means navigating the legal system alone, with more risk of errors and case dismissal.

Why Hire a Bankruptcy Attorney

The bankruptcy laws changed with the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005 and are more strict and complicated. Navigating those without expert help is tough. An experienced attorney helps you understand those laws and makes sure you use all the protections and exemptions to your advantage.

Bankruptcy Laws and Recent Changes

Bankruptcy laws change periodically and the way cases are processed. The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005 made big changes. It made bankruptcy more complicated by adding credit counseling, debtor education courses and a means test to determine if you’re eligible for Chapter 7 bankruptcy.

Recently the Consumer Bankruptcy Reform Act (CBRA) of 2020 has proposed more changes, a new Chapter 10 to replace Chapters 7 and 13. This would simplify the process, have more flexible repayment options and address student loan debt but it has not been passed into law.

Working with an attorney who is up to date on the current laws and reform discussions is crucial to make sure your case is handled correctly and in compliance with the latest requirements.

For additional information, visit FindLaw's comprehensive guide to Chapter 7 bankruptcy changes.

Preparing for Bankruptcy

To get the most out of bankruptcy and avoid problems, prepare properly.

Don’t Make Financial Mistakes Before Filing

Before you file, don’t incur new debt. Don’t use credit cards or take out new loans. That’s fraud. Don’t transfer or sell assets without consulting your attorney. That’s hiding assets. Unusual financial activity and large or unusual transactions will raise red flags with the trustee.

Gather Documents

Make a list of all debts, credit cards, medical bills, payday loans, and student loans. Document all assets, property, vehicles, bank accounts, and investments. List income sources and monthly expenses and any big financial transactions, inheritances, or property transfers.

Complete Mandatory Credit Counseling

Before you file you must complete a credit counseling course from an approved agency. After you file a debtor education course is also required. An attorney can direct you to approved providers and make sure you comply with these requirements.

Types of Bankruptcy

Knowing the difference between Chapter 7 and Chapter 13 will help you choose the right path for you.

Chapter 7 Bankruptcy (Liquidation)

For people with little to no income who can’t pay back all or part of their debts, Chapter 7 involves selling non-exempt assets to pay creditors. Unsecured debts are discharged and you get a quick discharge of debt and a fresh start. The process takes about 4-6 months. But you may lose non-exempt property and it will be on your credit for 10 years.

Chapter 13 Bankruptcy (Reorganization)

For people with regular income who can pay back part of their debts over time, Chapter 13 lets you file a plan to pay off debts over 3-5 years. You can keep most assets and stop foreclosure. This requires consistent income and will be on your credit for 7 years.

Costs to File Bankruptcy

Filing bankruptcy has several costs depending on the type of bankruptcy and where you live. For Chapter 7 bankruptcy, the filing fee is $338 and attorney fees are $1,000 to $3,500 depending on the case and location. The credit counseling and debtor education courses are $50 to $100 each. Attorney fees for Chapter 7 are usually required before you file.

For Chapter 13 bankruptcy, the filing fee is $313, and attorney fees are $2,500 to $6,000 depending on the location. In Chapter 13 you can sometimes include attorney fees in the repayment plan so you can pay them over time instead of upfront.

Note: Fees may vary by state and the complexity of the case.

What If You Can't Afford Bankruptcy Fees?

If you make less than 150% of the poverty level, you may be able to get the filing fee waived. Courts can also let you pay the fee in installments over a certain period of time. Non-profit organizations may offer free or reduced-cost legal assistance. Selling non-essential assets to pay fees is another option, but talk to your attorney first.

Impact on Your Credit Score

Bankruptcy will hit your credit score hard and will stay on your credit report—up to 10 years for Chapter 7 and 7 years for Chapter 13. But discharging debt reduces your debt-to-income ratio and over time, can improve your creditworthiness.

By being responsible with your finances, paying bills on time and keeping low balances, you can rebuild your credit. You may pay higher interest rates, but you can get credit after bankruptcy through secured credit cards and credit-builder loans.

Tax Consequences of Debt Forgiveness

The IRS considers canceled debt as taxable income. However, debt discharged in bankruptcy is not taxable. If your total debt is more than your total assets at the time the debt was canceled, you may not have to report the canceled debt as income if you are insolvent.

Some types of canceled debt, like some student loans, may not be taxable. Talk to a tax professional to see how this applies to you.

Conclusion

Filing for bankruptcy is a big deal and can bring financial relief and a new beginning. But it’s complicated and full of pitfalls. A bankruptcy attorney gives you the expertise and support to navigate the system, protect your assets and get the best possible result for your case. By being proactive and getting professional help you can overcome financial hardship and move towards a more secure financial future.

Frequently Asked Questions