So many of us are out of work due to the pandemic and government-mandated shut-downs and other restrictions. Since that brief period of enhanced unemployment benefits expired, many are having to survive on much less.
The problem is, what happens when you have fixed expenses that must be paid every month, such as a mortgage, rent, or a car payment? Those don’t go away even if you are bringing less money home. Some of you are making ends meet by charging expenses to your credit cards. Some of you are allowing your mortgage, rent, or car payment to go into default.
Neither situation is ideal, and many months into the pandemic, you might be considering bankruptcy as an answer. But how can you afford to pay a lawyer to help you when you can’t even pay your bills?
This article, from the office of a bankruptcy lawyer in Woodbury, NJ, will explain the pros and cons of filing bankruptcy prose – that is, representing yourself.
The Pros of Representing Yourself in Your Bankruptcy Filing
You Do Not Have to Pay Attorney Fees
You are probably considering representing yourself for just this reason. Bankruptcy attorneys usually charge a flat fee upfront to represent their clients, instead of billing clients hourly. Legal representation for a Chapter 7 bankruptcy filing can cost anywhere from $700 to $1,700 depending upon the complexity of your financial situation. Legal representation for a Chapter 13 filing usually costs $3,500, which can be paid overtime in your Chapter 13 plan.
In a Chapter 7 filing, the entire legal fee must be paid before you file. Why? Because if you owe your attorney the legal fee on the date you file bankruptcy, your attorney becomes your creditor, which creates a conflict of interest. Also, since the attorney is an unsecured creditor, that debt will be discharged, and your attorney will not be paid.
If there are further proceedings outside the filing, 341(a) meeting of creditors, and plan confirmation, those will require additional legal fees. Proceedings outside of the usual scope of a bankruptcy filing and requiring a separate legal fee include:
- Filing an amended petition, schedules, or plan;
- Filing amended list of creditors;
- Litigating creditors’ objections to discharge;
- Litigating the Trustee’s objection to discharge;
- Defending in an adversary proceeding;
- Defending in a creditor’s Motion to Lift the Automatic Stay;
- Defending in a Motion to Dismiss;
- Defending a federal criminal charge of bankruptcy fraud
- Representation in the U.S. Trustee Office’s audit of your filing.
Attorney’s fees are paid in addition to the court filings fees, which in 2020 are $335 for filing Chapter 7 and for $281 for filing Chapter 13. If you qualify, you can pay your Chapter 7 filing fee in installments or have it waived by the court entirely.
You Are in Control of the Pre-Filing Process
When you work with an attorney, he or she will guide you through the pre-filing process and let you know exactly what documents and information you need to submit in order for them to prepare your filing.
When you represent yourself, you download the forms you need from the bankruptcy court website and fill them out, figuring out as you go along what documents and information you need. You will not have an attorney’s office calling or emailing you for missing information. Instead, you can take your time and amass the information you need at your own pace.
The Cons of Representing Yourself in Your Bankruptcy Filing
You Don’t Have Independent Review of Your Financial Situation by a Bankruptcy Expert
The prose help you can find on the bankruptcy court website will tell you all about disclosing your income, expenses, assets, and debts. But how can you be confident that you’ve disclosed everything you should disclose? The following unintuitive aspects of your financial past must be disclosed, among many others:
- You sold a real property within the last three years;
- You used your credit cards in the weeks before filing bankruptcy:
- You stand to inherit money soon;
- Someone owes you money;
- You owed a family member money and paid them back before filing bankruptcy;
- You are married;
- You co-signed someone’s car loan;
- You own a timeshare;
- You have an old boat in your backyard;
- You collect baseball cards;
- You have a gambling problem;
- You closed a bank account in the last year;
- You were the victim of identity theft;
- You had losses from fire, flood, another natural disaster, or theft;
- You have your grandmother’s diamond engagement ring.
A bankruptcy attorney knows what to ask you to tease out all of the information the bankruptcy court must have so that your filing is a complete disclosure of your financial situation. Of course, a filing can be amended, but most amendments require an additional filing fee, and amendments harm your credibility with the Trustee and the court. It is best to get it right the first time.
You Might Not Know How to Use Your Filing Optimally
Bankruptcy law is nuanced and contains many powerful provisions that you may not know how to take advantage of without the help of an experienced bankruptcy attorney.
For example, if you own a car and are still making payments on the car loan, and the car is worth less than what you owe, an attorney can help you “cram down” that car loan balance to the current value. You can pay that amount off at prime plus 1-3% interest over the life of your three- or five-year chapter 13 plan. A successful cram down saves Chapter 13 debtors thousands of dollars on their car loans. Your attorney knows how to draft this part of your plan so as to survive the inevitable objection of the car lender.
If you own a home, you have a second mortgage or a HELOC, and your home is worth less than what you owe on your first mortgage, you can “strip off” that second mortgage or HELOC as unsecured and have it discharged at the end of your Chapter 13 filing. An attorney will be able to obtain a valuation that stands up to the lender’s objection. Again, Chapter 13 debtors can take advantage of a down real estate market and save tens of thousands.
If you owe back income tax, these too can be discharged in bankruptcy under a complex set of very specific circumstances that an attorney can help you decipher and apply, potentially saving you thousands of dollars.
The Bankruptcy Court Holds You to the Same Standard as an Attorney
You must follow the same procedures and timelines as an attorney when you file bankruptcy pro se. This means if you fail to follow procedure or miss a deadline, your case can be dismissed, and you will not receive a discharge.
You Have No Help if a Creditor or the Trustee Objects to Your Filing
If something in your filing sparks the Trustee’s or a creditor’s objection, you will have no one on your side to negotiate or to defend. Chances are, if you use an attorney to file bankruptcy, your attorney will have foreseen any potential basis for the objection and worked through and around it to ensure your success.
If you have a fairly straightforward financial situation, such as a single source of income, no real property, and only credit card debt to deal with, filing bankruptcy pro se may work for you. But if your financial situation is any more complicated than that, it may be worth your while to at least consult with an attorney. Most bankruptcy attorneys do not charge for an initial consultation, and you will be able to get an assessment of your financial situation from an expert and find out how much it would cost you for representation.
About the Author: Veronica Baxter is a legal assistant and blogger working and living in the great city of Philadelphia. She frequently works with Stephen V. Bottiglieri, a noted bankruptcy attorney in Woodbury, NJ.
