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When you Are too poor for Bankruptcy

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    When you Are too poor for Bankruptcy

    Dec 14, 2011



    If you can't afford to hire a lawyer or pay the bankruptcy filing fee, consider some options so you still get creditor relief and protect yourself from property loss.
    .
    Matt and Toni used their credit cards when times were good to buy furniture and otherwise set up their new household. They assumed they would keep earning enough money to pay off their debts.

    But Toni, a home health aide, had stretches of unemployment between clients, so they starting using the cards to pay their other bills. She took six months off when she had a baby, putting them further behind.

    Instead of rising, the couple's income is about half of what it was a few years ago, said Matt, who works for the state of Washington. Meanwhile, their revolving debt has ballooned to $50,000. And this fall Toni had another three-week gap in employment.

    "That doesn't seem like much," Matt said, "but it was enough to really push us over the edge."


    Matt had been toying with the idea of bankruptcy for years, but when he visited a lawyer he learned that he didn't have enough cash on hand to even start the filing.

    "I've had the initial consultation," he said, "but am not able to pay the fee to have the means test conducted, much less the rest of the fees."

    It's not uncommon for people to struggle so long with impossible debts that they wind up too broke to pay a lawyer or the filing fees for bankruptcy, said Henry Sommer, a former president of the National Association of Consumer Bankruptcy Attorneys and a supervising attorney at the pro bono Consumer Bankruptcy Assistance Project in Philadelphia.



    The most common type of bankruptcy, a Chapter 7 filing that erases most consumer debts, typically costs $1,500 or more. A Chapter 13 filing, which involves a repayment plan, can cost twice as much.

    Costs for both types of filings rose after the 2005 bankruptcy reform act imposed a means test and other limitations on filing. As costs have risen, so have the number of people filing without a lawyer's help -- by 187%, according to the Administrative Office of the U.S. Courts.

    People who file for bankruptcy without attorneys rose from 6% of Chapter 7 and Chapter 13 filings in 2007 to 8% of Chapter 7 filings and 10% of Chapter 13 filings this year.

    Now, some of these folks could simply hate lawyers, but more likely they're trying to save what little money they have left.

    This strategy can backfire, though, since a poorly filed bankruptcy can be dismissed -- meaning you don't get any relief from your creditors -- or you could lose some property that might have been protected if you'd gotten competent help.

    Before you risk that, consider the following options:

    Figure out if you're judgment-proof. If your income and property are legally protected from creditors, you can still be sued, but the creditors won't be able to collect. That's known as being judgment-proof. You may be judgment-proof if you own very little and have no income, or if all your income is from Social Security, because Social Security payments are legally protected. The list of property that's exempt from creditors' claims varies by state (check here) but often includes clothing, household items and a car worth $2,000 or less.


    Alternatives to bankruptcy
    .

    If you're judgment-proof, you may not need to file for bankruptcy, Sommer said. You can just send a letter to your creditors telling them to stop contacting you.

    There is a hitch in being judgment-proof: If your creditors go to the trouble to sue you and get a court judgment, they may be able to collect from you if your circumstances improve in the next 10 years. A bankruptcy filing, by contrast, would legally erase the debt.

    If you think you may be judgment-proof, it may be worth scraping up a couple hundred dollars to confirm that with an attorney (you can get referrals from the National Association of Consumer Bankruptcy Attorneys). Some attorneys will charge less.

    Expand your thinking. Your bank account may be empty, but there still may be ways to quickly raise the money you need to file.

    Canceling pay TV and other luxuries could free up some cash, assuming you aren't on a contract that imposes early-termination fees. Selling property you're likely to lose in bankruptcy, such as a second car, could bring you the cash you need.

    If you're still making payments on debts you hope to erase in bankruptcy, for example, you probably should stop and save up the cash instead. Sommer said some people continue making payments on such debts right up until they file, which really makes no sense.

    "It's a habit or a sense of moral obligation," Sommer said. "Some people pay a little bit to everybody, thinking 'that will keep them off my back,' but that is not a good strategy."

    Instead, you should prioritize the payments that matter the most -- your rent or mortgage if you plan to stay in the home, your car payment if you need your wheels to get to work, essential medical treatments, food and utilities.

    If cash is really tight, you could even skip a utility payment if that would help you scrape up the funds to talk to an attorney.


    Other sources of cash can include loans from friends or family, or your retirement funds. The loans would be legally wiped out in the bankruptcy filing, but that wouldn't prevent you from repaying them later. Using retirement funds to pay your creditors isn't advisable, since that money is protected, but it may be worth paying the taxes and penalties for such a withdrawal if bankruptcy would help you get back on your feet.

    Look for low-cost help. Many bankruptcy attorneys offer discounted initial sessions. This session should give you a good idea of whether bankruptcy is an appropriate option and what you need to do to file.


    If your income is at or below the U.S. poverty level (currently $18,530 for a family of three), you may be able to get free help from your local legal-aid society if -- and this is a big if -- the agency does bankruptcy work. Many legal-aid societies don't do bankruptcies or do very few because of limited funds. But your legal-aid society may be able to refer you to other low-cost or free services that may help.

    A few bankruptcy courts have "pro se help desks," including the courts in Chicago and Milwaukee. These services are designed to help people who are filing without an attorney ("pro se").

    Document preparation services often tout themselves as cheap alternatives to hiring lawyers. But be careful. Legal-aid attorneys complain that some of these services give advice, even though they're not supposed to, and that the advice may be wrong. Given how complicated today's bankruptcy procedures are, you should at least read an updated guidebook, such as Nolo Press' "How to File for Chapter 7 Bankruptcy," currently in its 17th edition, before attempting to file on your own.


    Liz Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "The 10 Commandments of Money: Survive and Thrive in the New Economy."


    http://money.msn.com/credit-rating/w...cy-weston.aspx
    Last edited by oregonpilot; 12-14-2011, 03:27 PM.
    filed: 8/10 ...341:10/8/10 ... Discharged & Close: 12/9/10
    "Nothing is easy to the unwilling" Thomas Fuller

    #2
    All one has to do is stop making payments on the credit cards or automobiles for a few months before they plan to file - we retained our attorney in 2/02 and filed in 4/02 - for the two months before filing we stopped all vehicle and credit card payments upon our attorney's instructions - we were amazed at the cash we had on hand when we did not have to pay those bills. It's an eye opener and many people do not want to ever be in that position again once they file. Our Chapter 13 attorney's fees were included in our Plan. One's filing fee can be gleaned from funds saved by not making those credit cards or vehicle payments.
    _________________________________________
    Filed 5 Year Chapter 13: April 2002
    Early Buy-Out: April 2006
    Discharge: August 2006

    "A credit card is a snake in your pocket"

    Comment


      #3
      I really don't think there is such a thing as "too poor" to file except in very extreme, rare circumstances. The vast majority of BK filers are middle class and have income. As Flamingo points out, the inability to hire an attorney usually stems from the fact the person is paying a bill they shouldn't be.

      Comment


        #4
        Originally posted by Flamingo View Post
        All one has to do is stop making payments on the credit cards or automobiles for a few months before they plan to file - we retained our attorney in 2/02 and filed in 4/02 - for the two months before filing we stopped all vehicle and credit card payments upon our attorney's instructions - we were amazed at the cash we had on hand when we did not have to pay those bills. It's an eye opener and many people do not want to ever be in that position again once they file. Our Chapter 13 attorney's fees were included in our Plan. One's filing fee can be gleaned from funds saved by not making those credit cards or vehicle payments.
        This is true if you decide to file BK the first month you can't afford your credit cards before you lose your income that you had been paying your cards with. In my case I lost my job and just assumed I'd get another one at the same pay. The minute I lost my job I was unable to pay my credit cards with my income and the jobs that I have been working the last 2 years basically paid my living expenses as there were times that I wasn't working for 2-3 weeks at a time and then had to pay catch up on the bills that had to be paid like rent, utilities. So in actuality I didn't have the money to save by not paying the credit cards - it just wasn't there.

        HHM, in the real world there are plenty of people out there that can't afford an attorney. If I didn't have my payment included in my plan then I would of had to save up for two years before I could afford to file. Within that time I would of been garnished and not have been able to even pay my basic living expenses. Granted I don't live in a slum apartment or go without food but I do have very few possessions and watch every dollar that I spend. It's been a long time since I've even went into a store and didn't think long and hard about even buying a candy bar at the grocery checkout. So while I am surviving I have no extra money. I actually don't even have the $100 dmi without drasically reducing my spending but the alternative is to have my wages garnished 25%. So there is no money for oil changes and it is a good thing I take the bus or I'd be more worried about having a 15 year old car. My only hope is that my income increases enough so that when I am out of the chapter 13 I'll be able to start living again. So some people are too poor to save to file yet they might not look it from the outside.
        Filed 11/17/11 Chapter 13, 341 meeting 12/21/11. Plan confirmed 1/19/12 - DISCHARGED 12/16/15

        Comment


          #5
          There are a lot of people out there that can't afford an attorney.

          I had been involved with my family's small business for many years, which was my only source of income. Then in 2006 my father passed away, leaving over $700k in debt and a very much in the red business. Of course for a few years, I kept playing the insane credit card game of shifting balances around; using cards to pay business expenses. I stupidly kept hoping things would get better. The economy tanked by the end of 2009, which to me was like the holiday season that never was. Then about mid 2010, I had to close my business location. A couple of lawsuits filed against me, finally convinced me about what I had to do.

          I had a choice of what chapter bankruptcy to file, but I chose chapter 13. My state had a very low car exemption at that time, my house has some equity and I hoped to be able to hang onto a few business assests. Jobs, well certainly ones that will pay anything, just aren't that plentiful when you are near 60. I could not have afforded my attorney if it wasn't for the help of my boyfriend, and that my lawyer let me put 50% of his fee into my plan.

          I'm still self-employed, basically working online and from my home, but my income is a fraction of what it used to be. I've learned to be extremely careful. I can't even go grocery shopping without considering every little thing. For example, I usually go to at least 2 stores. I'll pick up the 89 cent loaf of white bread at one (forget the brown bread it's $1.39) and go over to the next store where I can pick up a couple of cube steaks for $3.13. I haven't had anything like Filet Mignon for at least a couple of years. I put $15 to $20 gas in my car at a time; I haven't filled up for at least 3 years.

          Unfortunately, I was never a saver but, one positive thing, is that living like this sure teaches you to save. I just don't think I could spend the way I used to, even if I "have it" again.

          Comment


            #6
            The reason we filed was that we lost over 70% of our income. My husband's entire department was laid off due to a merger and because he was contract, he received no severance. After we ripped through whatever savings we had and stupidly used his 401(k) to pay bills for several months, we were done - my income just covered the mortgage and utilities. Robbing Peter to pay Paul only put us further in debt and cards to their limits. When I look back the worst thing we did was not file sooner. We tried not to file hoping my husband would find another job at close to what he was previously making. It never happened. Get proactive - If one has no job or little income, one may be eligible for legal aid in the state in which they reside. Make some phone calls. Also family and friends can step in and help as has occurred with many people posting in this forum over the years. Even BK attorneys at consultations can offer suggestions as to what to do.
            _________________________________________
            Filed 5 Year Chapter 13: April 2002
            Early Buy-Out: April 2006
            Discharge: August 2006

            "A credit card is a snake in your pocket"

            Comment


              #7
              i know in this area if you are too poor to file there are many excellent attys that will take the case pro bono. i know ours did pro bono work, and i know, through the county or local bar, referrals can be obtained.

              also, i'm hard pressed to believe that most attys don't give free consults. everyone of the one's we interviewed did, and were most willing to accept payments. as far as doing the "means" test right there in the office, never happened. if you go to the atty prepared they most likely can figure where your headed with bk, provided one has disclosed as much to everything as possible.

              i think this article, like many i have been reading, are attempting to discourage people from filing, as there has been such an increase of filings in the past 3 years of the likes the courts would have never thought possible. especially, after the 2005 bk law changes, most of those were put into place just for that reason, (to discourage or think twice about filing), however, as we have all been witness to, when you have been put up against a wall you just throw everything into the wind and go with it. at first we were concerned about those changes, yet we had no choices.

              even though the facts are different, we were just about in the same situation as flamingo and so many other Americans. where there is a will there is a WAY! like flamingo says, one has to start making calls and make a full ditch effort to get the help you need.
              8/4/2008 MAKE SURE AND VISIT Tobee's Blogs! http://www.bkforum.com/blog.php?32727-tobee43 and all are welcome to bk forum's Florida State Questions and Answers on BK http://www.bkforum.com/group.php?groupid=9

              Comment

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