Q: What kind of situation would make a person a good candidate for bankruptcy?
A: The typical client for Chapter 7, the most common form of bankruptcy, would be a person who lost their job, was many months behind on their mortgage payments and was in foreclosure, and had a significant amount of credit card debt. This is a person who has no viable alternatives other than bankruptcy to get back on their feet. Remember, Chapter 7 bankruptcy allows the client to have a fresh start in life; keep most, if not all, of their basic assets such as their home, vehicles, furniture, clothing, jewelry and retirement funds and pay nothing to any of their creditors.
Q. In your experience, what are the main reasons people are filing for bankruptcy? Have the reasons changed over the years?
A: Before the recession it was often medical debt incurred by people without health insurance, a divorce or the death of a spouse that would lead to bankruptcy. Now, virtually every bankruptcy filing can be traced directly to the economic downturn, with loss of a job, a cutback in work hours, a reduction in commissions and bonuses, and a steep decline in customers for small businesses.
Q. How much do you charge someone to file for bankruptcy, and how long does the process typically take?
A: While every situation is unique, a typical Chapter 7 bankruptcy for an individual might cost between $1,900 and $2,900, depending on the variety and kind of creditors, the type and location of assets, and the income and expenses of the client. A typical Chapter 7 bankruptcy takes about three months from beginning to end.
Q: Is it necessary to hire a lawyer to declare bankruptcy?
A: It is not required that a person hire a lawyer to file for bankruptcy, but once they see the large amount of paperwork involved and the complex and sometimes arcane rules that apply, most people back away from representing themselves. At the very least, you should meet with a bankruptcy lawyer to go over the process before making the decision to proceed on your own.
Q. What are some alternatives to bankruptcy?
A: Some of the alternatives include the short sale of a house, a loan modification, a voluntary credit card debt workout, a deed in lieu of foreclosure, or perhaps even a lawsuit against one’s lender for violation of the Truth in Lending Act or other state and federal consumer protection statutes. Sometimes credit card companies are willing to make substantial discounts, both in amounts owed and interest rates, to avoid having a customer file for bankruptcy. It is at this point, just prior to filing for bankruptcy, that the consumer has the most leverage over the creditor.