First 30 Days Blog

20 jun

Bankruptcy: The Power of the Clean Slate

JennaSmithIt doesn’t take many clicks online to find writing and advice on how to shape up your finances, even First30Days has a great financial advice section found here. There are posts on frugal living, retirement, and even investing. Today we are going to talk about another form of professional debt assistance: Bankruptcy.

Chances are you felt an uncomfortable twinge in the pit of your stomach when you read that word. Perhaps it’s because you have always heard that bankruptcy will ruin your credit and your life. Or, perhaps it’s because you have always been told that the only people who file for bankruptcy are incredibly irresponsible and incredibly destitute.

None of those things could be further from the truth.

What is Bankruptcy?

Bankruptcy is a legal process that, according to a 1934 decision by the Supreme Court, “…gives to the honest but unfortunate debtor…a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.”

The goal is to release you from certain debts, and to prevent creditors from taking further action to collect on those debts. Thereby giving you a clean slate, and the ability to move forward and rebuild your life.

There are six basic types of bankruptcy, but only Chapter 7 and Chapter 13 apply to the average consumer debt.

Chapter 7 and Chapter 13

Although both types of bankruptcy apply to regular consumers, they differ greatly in the way they deal with the debt.

Chapter 7

Chapter 7 – the type that most people are familiar with – eliminates all debts except student loans, taxes, court-ordered child or spousal support, and certain other debts to the courts, or local/federal government agencies.

Chapter 7 is usually reserved for people who have no assets, or are willing to give up non-exempt assets to their creditors. These assets could include any credit cards, vehicles under lien, and real estate. Additionally, those who file Chapter 7 usually do not have enough income to pay off their debts.

The average cost for a Chapter 7 bankruptcy is $245 to file the case, a $46 administrative fee, a $15 trustee surcharge, plus whatever the attorney charges for his services. With the attorney fees, it could cost as much little as $700 or as $1,500 to file Chapter 7, depending on your geographic location. It could be tempting to save on the attorney fees and file on your own. While that is absolutely an option, it could actually end up costing you in the long run.

The federal government makes frequent changes and amendments to the bankruptcy code, and it’s difficult for a layperson to keep up. Additionally, bankruptcy involves filing a lot of paperwork with the courts. It costs money every time you do anything with the courts. If you file on your own, you could make paperwork mistakes that require you to file corrections and amendments, which could greatly increase the usual filing and court fees. Worst-case scenario, you could fail to get your debts discharged, which means you’ve just spent a lot of money to end up right back where you started.

Your best bet is to go with a knowledgeable and experienced Chapter 7 bankruptcy lawyer because they can do it right the first time and, ultimately, save you time and money. Their targeted area of expertise will generate a more substantial possibly for a positive outcome.

Chapter 13

Chapter 13 does not eliminate all debts and you may be able to include debts to the courts, or local/federal government agencies in the filing.

Chapter 13 is usually reserved for people who have assets they wish to keep and have enough income to make a payment agreement with the courts. Under Chapter 13, you could end up paying back all, or part, of your debts over a seven-to-ten-year period. The amount you pay will depend on your income, how much the courts can negotiate with your creditors, and which assets you want to keep.

The average cost for a Chapter 13 bankruptcy is $235 to file the case, and a $46 administrative fee, plus whatever the attorney charges for his services. With the attorney fees, it could cost as little as $1,500, or as much as $5, 000 to file Chapter 13, depending on your geographic area.

As with the Chapter 7, although it is cheaper to file alone, you will have a better result if you use the services of a reliable and experienced attorney.

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Posted by Jenna Smith on June 20th, 2014 in Finances | 0 comments Read related posts in

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