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If you're facing bankruptcy, it goes without saying that funds are tight, so you may be wondering if hiring an attorney to represent you is worth the cost. The answer is almost always yes, but it depends in part on the assets you're trying to protect and whether you'll be filing Chapter 7 or Chapter 13 bankruptcy.
What Does a Bankruptcy Attorney Do?
A bankruptcy attorney can help you size up your financial circumstances, including the types and amounts of the debts that are overwhelming you, and advise you about whether it's wise to pursue bankruptcy at all. If bankruptcy is your best option, your attorney can help you decide if you should file it under Chapter 7 or Chapter 13 of the federal bankruptcy law. A Chapter 7 bankruptcy, also known as a liquidation bankruptcy, erases most debts but requires forfeiture of all but a small amount of assets. A Chapter 13 bankruptcy establishes a plan for making partial repayment to your creditors, and can allow you to keep certain assets, such as a home or car.
Once you decide which bankruptcy procedure to pursue, your attorney will guide you through the steps involved, including:
- Submitting a list of creditors to the court and scheduling court appearances.
- Directing you on where and how to complete a required pre-bankruptcy credit counseling session and a post-bankruptcy debt management course.
- Submitting required fees when filing documents with the court.
It's possible for you to do some or all of these things yourself, but these steps will likely go more smoothly if they're done on your behalf by an attorney familiar with deadlines, procedures and other formalities of the court.
How Much Does a Bankruptcy Attorney Charge?
The costs for a bankruptcy attorney will depend to some extent on which type of bankruptcy you plan to file.
If you're filing Chapter 7 bankruptcy, which can be wrapped up within a few months in the most straightforward cases, your attorney will likely charge a single flat fee for handling your case. Fees differ by lawyer, and can vary regionally even though federal bankruptcy procedures are the same everywhere in the U.S. You could pay as little as $500 to more than $2,000, but $1,200 to $1,500 is fairly typical. If your finances are particularly complicated, however, it's possible your fee will be greater.
You'll have to pay your attorney's fee in its entirety before your lawyer files your case. That's because all creditors (including your attorney) are legally barred from trying to collect money from you once you've filed Chapter 7. You'll also be responsible for paying the court a filing fee ($338 for 2021), but you can apply to have the fee waived if you lack the means to pay it.
The process of filing Chapter 13 bankruptcy is more complicated and far lengthier than Chapter 7, and legal fees are significantly higher as a result. Chapter 13 typically involves creation of a payment plan that can take up to five years to complete. Fees of $2,000 to $5,000 are not unusual, and they can run significantly higher in complicated cases.
The good news about legal fees under Chapter 13 is that they often are rolled into the monthly payment plan devised to help repay your creditors, so you don't have to come up with the money all at once, the way you do under Chapter 7. You will have to pay the court an upfront fee (currently $313) when filing Chapter 13 with the court.
Protection Against Excessive Attorney's Fees
In every bankruptcy case, the court appoints an administrator known as a trustee, whose responsibilities include: inspecting all paperwork you submit for accuracy and completeness; reviewing your finances to determine which assets (if any) are eligible to be sold to help repay your creditors; conducting the sale of those assets; and, in Chapter 13 bankruptcy cases, collecting your monthly payments and distributing them among your creditors. Another duty of the trustee is to review the fees your attorney charges. If the trustee considers any fees excessive, they can order the attorney to refund them. If you think any of the fees are excessive, you can ask the trustee to review them.
How to Find a Bankruptcy Attorney
Unless you're close with someone who's had a recent bankruptcy, you may not feel comfortable asking friends to refer you to a good bankruptcy attorney. Fortunately, there are other resources available:
- Enter "bankruptcy lawyer" and your ZIP code in the Better Business Bureau's searchable directory, and you'll receive a list of attorneys, with ratings provided by their clients.
- The National Association of Consumer Bankruptcy Attorneys is a trade organization that provides training and advocacy for bankruptcy attorneys. It provides a searchable database of its members and advice on how to choose the best attorney for your needs.
- Your state bar association can provide referrals to bankruptcy attorneys practicing near your home.
How Bankruptcy Affects your Credit
A bankruptcy is a major negative event in your credit history, and it typically has a deep, lasting negative effect on your credit scores and your ability to get new credit. A Chapter 7 bankruptcy stays on your credit report for 10 years from the date you file bankruptcy, while a Chapter 13 bankruptcy remains for seven years after the filing date.
A bankruptcy will have a negative effect on your credit scores as long as it appears on your credit report, but the severity of its impact on your scores will diminish over time. Some lenders refuse to consider applicants with bankruptcies on their credit reports, while others will consider applicants several years after a bankruptcy has been completed.
The credit consequences of bankruptcy may be severe, but they are not permanent.
With time and persistence, it's possible to rebuild your credit after bankruptcy and once again enjoy the ability to borrow and repay money responsibly. If you have a bankruptcy in your recent past, it's a good idea to keep tabs of your credit scores and track your recovery progress.