3 Reasons Why the DIY Approach to Bankruptcy is Shortsighted!
Job loss; a catastrophic illness; the loss of a loved one: All are life-changing situations and can lead to a dramatic change in a person’s financial situation which can, in some cases, lead to filing for bankruptcy.
Attempting to file for bankruptcy without the assistance of an experienced bankruptcy attorney may, at first glance, seem like a way to save money when you’re in dire need of trimming every expense possible. But when you consider the many facets involved in filing for bankruptcy to get out of debt, the do-it-yourself (DIY) approach can be a classic case of ‘penny wise, pound foolish.’
1. Attorneys are experts in dealing with the myriad of rules and forms involved in bankruptcy:
As is true in any court case, filing for bankruptcy requires adhering to an intricate system of rules and the completion of extensive paperwork. Make a misstep and your case could be dismissed or you could be denied discharge of your debt. Things that need to be reviewed prior to filing – such as whether or not you own a home or a car that you want to retain, the types of debt you’ve accrued, and your income and the value of your assets – will all have a major impact on the successful outcome of your bankruptcy case. Because there are several types of debt which cannot be discharged, working with an attorney ensures the best possible results in your case. Generally speaking, bankruptcy forgives ‘unsecured debt’ such as credit card balances and medical debts. Debts which cannot be discharged include back child support and alimony, certain tax debts and debts resulting from criminal behavior or, in most cases, student loans. By reviewing the type of debts you’ve accrued, working with an experienced bankruptcy attorney may well save you money overall.
2. A bankruptcy lawyer can help you decide whether to file for chapter 7 or chapter 13:
Once you’ve decided you need to file for bankruptcy, you’ll need to decide whether to do so under chapter 7 bankruptcy or chapter 13 bankruptcy. Because chapter 7 discharges debt – meaning you no longer owe the money – rather than establishing a repayment plan as chapter 13 does, many people will instinctively choose to file under chapter 7. But if you’d like to retain ownership of your home – one of the biggest aspects to consider when deciding how to file – working with an attorney who is knowledgeable in the complex rules governing real estate and homeownership in bankruptcy is crucial. Chapter 13 will allow you to arrange a payment plan that pays back any past due amount while staying current on your mortgage. Once approved by the court, the mortgage holder cannot seize your home as long as you abide by the payment plan. A chapter 7 bankruptcy proceeding would not compel your mortgage holder to accept a payment plan for any past-due payments. They would be entitled to demand the past-due amount all at once which could lead to foreclosure.
3. Working with an attorney who specializes in bankruptcy may lead to a quicker financial recovery:
Both a chapter 7 and a chapter 13 bankruptcy will have a negative impact on your credit score for approximately 10 years. The higher your current credit score, the more significant the impact: someone with a FICO score of 680 would lose approximately 140 points while someone with a score of 780 would lose roughly 230 points. But by reviewing your credit score, debts and assets, and income, an attorney can help you decide if opting to file under chapter 13 is a smarter decision in the long run. While the impact on your score is the same, future lenders may view you more favorably if you’ve attempted to repay your debts under chapter 13. And by reviewing the types of debts you have – secured vs. unsecured – and your income, an attorney may be able to suggest options which would allow you to avoid filing for bankruptcy, such as consolidating credit card debt by engaging a nonprofit credit counseling organization or a applying for a debt consolidation loan.