Filing for bankruptcy is a major financial decision that can provide a fresh start for individuals or businesses struggling with overwhelming debt. It’s a process governed by strict legal guidelines, and deciding to file can be both stressful and confusing. One of the most pressing questions many people face is whether to file for bankruptcy with or without the help of an attorney.

While it’s legally possible to file for bankruptcy on your own, doing so comes with significant risks. This blog will explore the different types of bankruptcy, the process of filing, and why hiring an attorney might be a crucial part of ensuring your bankruptcy case is handled correctly and efficiently.

Understanding the Different Types of Bankruptcy

Before delving into whether you need an attorney, it’s essential to understand the different types of bankruptcy filings. Each type caters to different financial situations, and choosing the right one is critical for your financial future. The most common types of bankruptcy for individuals and small businesses are Chapter 7 and Chapter 13, with Chapter 11 being an option primarily for businesses.

Chapter 7 Bankruptcy: Liquidation

Chapter 7 is the most common type of bankruptcy for individuals. It involves the liquidation of non-exempt assets to pay off as much debt as possible. Once the assets are sold and the proceeds are distributed to creditors, the remaining eligible debts are discharged, providing the filer with a clean slate.

Eligibility: To qualify for Chapter 7, you must pass a means test, which examines your income, expenses, and overall financial situation. If your income is too high, you might be directed to file for Chapter 13 instead.

Advantages:

• Provides a relatively quick way to discharge most unsecured debts, such as credit card balances and medical bills.
• Typically takes only three to six months to complete.

Drawbacks:

• You may lose some of your assets, although many essentials are protected under state or federal exemption laws.
• It stays on your credit report for up to 10 years, impacting your ability to secure new credit.

Chapter 13 Bankruptcy: Repayment Plan

Chapter 13 is designed for individuals with a regular income who want to keep their assets and pay off debts over a period of three to five years. Instead of liquidating assets, you propose a repayment plan that reorganizes your debt into manageable monthly payments.

Eligibility: Chapter 13 is an option for individuals who do not qualify for Chapter 7, often because their income exceeds the means test threshold. There are also debt limits to consider: as of 2023, unsecured debts must be less than $465,275, and secured debts must be less than $1,395,875.

Advantages:

• Allows you to keep your assets, such as your home or car, while catching up on missed payments.
• After completing the repayment plan, any remaining eligible debts are discharged.

Drawbacks:

• Takes three to five years to complete, during which you must adhere strictly to the court-approved repayment plan.
• It remains on your credit report for up to seven years.

Chapter 11 Bankruptcy: Business Reorganization

Chapter 11 is primarily used by businesses but can also be utilized by individuals with significant assets and debts who don’t qualify for Chapter 7 or Chapter 13. Chapter 11 involves reorganizing debt and developing a repayment plan while the business continues to operate.

Advantages:

• Allows businesses to continue operating while restructuring their debt.
• Can help preserve jobs and business operations while addressing financial issues.

Drawbacks:

• Highly complex and expensive, often requiring the guidance of an experienced bankruptcy attorney.
• Takes longer to complete due to its complexity.

Why Understanding Bankruptcy Types Matters

Choosing the right type of bankruptcy is crucial because each has different procedures, impacts on assets, and long-term effects on your financial status. Making this decision is one of the areas where an attorney’s expertise becomes invaluable. Incorrectly filing under the wrong chapter could lead to the dismissal of your case or unintended consequences for your financial future.

Filing for Bankruptcy: The Basics

The process of filing for bankruptcy involves several steps, many of which require a detailed understanding of bankruptcy laws and court procedures. Here’s an overview of the process:

1. Credit Counseling: Before filing for bankruptcy, you must complete a credit counseling course from an approved provider. This is a mandatory step, regardless of whether you have an attorney.
2. Filing the Petition: The process officially begins when you file a bankruptcy petition with the court. This document outlines your financial situation, including income, assets, debts, and expenses. Mistakes or omissions on this petition can result in delays or even dismissal of your case.
3. Automatic Stay: Once you file, an automatic stay goes into effect, which temporarily stops creditors from pursuing collection activities, such as wage garnishments, lawsuits, or repossessions.
4. 341 Meeting: A meeting with your creditors, known as a 341 meeting, is scheduled. You’ll be required to answer questions under oath about your financial situation. An attorney can help you prepare for this meeting and represent you during the questioning.
5. Discharge or Repayment: Depending on the bankruptcy chapter, the court will either discharge eligible debts (Chapter 7) or approve a repayment plan (Chapter 13). In Chapter 11 cases, a complex reorganization plan must be confirmed by the court.

Each of these steps involves legal requirements and documentation. Errors in filing can lead to delays, increased costs, or even case dismissal, which is why many people choose to hire an attorney.

Do You Really Need an Attorney to File for Bankruptcy?

Technically, it is possible to file for bankruptcy on your own—this is known as “filing pro se.” However, navigating bankruptcy laws and court procedures without legal guidance can be overwhelming. Let’s explore the pros and cons of filing with and without an attorney.

Filing Without an Attorney: Pros and Cons

Pros:

• Cost Savings: The most significant advantage of filing without an attorney is saving on legal fees. Attorney fees can range from $1,000 to $3,500 for Chapter 7 cases and $3,000 to $6,000 for Chapter 13 cases.
• Control Over Your Case: You maintain complete control over the process and decisions regarding your bankruptcy case.

Cons:

• Complex Process: Bankruptcy laws are complex, and even small mistakes in your paperwork or understanding of exemptions can have significant consequences. For example, incorrectly valuing assets or misunderstanding which debts are dischargeable could result in losing property unnecessarily.
• Risk of Dismissal: Filing errors, missed deadlines, or failure to provide required documentation can result in the dismissal of your case. A dismissed bankruptcy leaves you back where you started, but often with additional legal and filing costs.
• Stress and Time-Consuming: Managing the entire process on your own is time-consuming and stressful, especially if you’re unfamiliar with legal terminology and requirements.

Filing with an Attorney: Why It’s Worth Considering

1. Legal Expertise and Guidance: An attorney can help you understand which type of bankruptcy is right for your situation and explain the long-term financial implications. Their knowledge of bankruptcy laws ensures that you comply with all legal requirements and take full advantage of the exemptions and protections available to you.

2. Accurate Paperwork: Filing for bankruptcy involves completing extensive paperwork and accurately listing all your assets, liabilities, income, and expenses. An attorney ensures that this information is correctly documented, reducing the risk of errors that could delay or jeopardize your case.

3. Protection of Assets: An attorney helps you navigate the complex web of bankruptcy exemptions. In Chapter 7, proper use of exemptions can protect certain assets from liquidation. In Chapter 13, an attorney will work with you to develop a feasible repayment plan that fits within the guidelines of the law.

4. Representation in Court: During the bankruptcy process, you may need to attend hearings and the 341 meeting of creditors. An attorney can represent you, answer questions from creditors on your behalf, and ensure that your rights are protected.

5. Dealing with Creditors: If creditors challenge your bankruptcy filing or attempt to collect during the process, your attorney can handle these disputes. This is particularly beneficial in cases where creditors are aggressive or when debt dischargeability is in question.

6. Peace of Mind: Perhaps one of the most valuable benefits of hiring an attorney is the peace of mind that comes with knowing your case is being handled correctly. Bankruptcy is a stressful process, and having a knowledgeable advocate by your side can make a significant difference in your emotional well-being.

Is Hiring an Attorney Always Necessary?

While having an attorney is highly recommended for most bankruptcy cases, there are situations where individuals may choose to file pro se:

• Simple Chapter 7 Cases: If you have a straightforward Chapter 7 case with minimal assets, no property to protect, and mostly unsecured debts, you might consider filing without an attorney. However, you must be comfortable navigating legal procedures and completing detailed paperwork.
• Inability to Afford Legal Fees: If you’re unable to afford an attorney, you might explore low-cost or pro bono legal services. Many states offer legal aid programs that provide free or reduced-cost legal assistance to individuals with low income.

Filing for bankruptcy is a complex, legally intensive process that can have long-lasting effects on your financial future. While it’s possible to file without an attorney, doing so comes with significant risks, especially if you have complex assets, multiple types of debts, or concerns about protecting your property.

Hiring an experienced bankruptcy attorney can ensure that your case is handled correctly, help you understand your rights, and maximize the financial benefits of the process. Ultimately, while hiring an attorney involves additional costs, it’s often a wise investment in safeguarding your financial future and ensuring a smoother, less stressful bankruptcy experience.