What Do You Do When You Can’t File for Bankruptcy?

1 million consumers can’t afford bankruptcy!

According to recent research compiled by the National Bureau of Economic Research, between 200,000 and 1 million consumers are estimated to be unable to pay the $1,500 average cost to pay for the filing and lawyer fees for a Chapter 7 bankruptcy protection, which means that a number of cash-strapped Americans will not even be able to afford to file for bankruptcy this year. In Chapter 7 bankruptcy, the most common form of consumer bankruptcy, your assets that are non-exempt are turned over to a trustee. The trustee then allocates funds to your creditors, which in turn wipes out all or most of your debts. Chapter 7 wasn’t always this expensive, but when bankruptcy laws changed in 2005 the process of filing became more expensive and more difficult to execute. Debtors now have to go for credit counseling before they are able to file a bankruptcy petition. Consumers are also subjected to a means test, which determines exactly which bankruptcy they can file for. In Chapter 13 bankruptcy, the filer undergoes a financial reorganization overseen by the court. In an effort to protect certain assets, such as an estate, a plan is developed to pay off the debt. As of the 2005 changes, the debtor must take a debt management course as well as file a certificate of completion with the court. The United States Government Accountability Office estimated that the average attorney fee for a Chapter 7 case increased by 51 percent, from $712 in February and March 2005 to $1,078 in February and March 2007.

Bankruptcy fees for self-filing range from $281 to $306

And today, the Chapter 7 filing fee by itself, without additional attorney fees, is $306 and $281 for a Chapter 13, according to the United States Bankruptcy Court. If your household income is less than 150 percent of the income poverty line you can get the fee waived. The need for claiming bankruptcy it is perhaps even greater now, during these tough economic times. “There are a lot of people in this country who for many reasons—unemployment, skyrocketing medical bills—can’t afford to pay their bills,” says Andrea Fisher, an attorney who specializes in bankruptcy. “They legitimately need to file Chapter 7 to get the breathing space they need to get a fresh start.” You can file for bankruptcy without consulting a lawyer, but it is not recommended. You can make a number of harmful mistakes that could ultimately lead to your case being dismissed by the court. “If you truly need to file bankruptcy, you truly need to hire an attorney,” Fisher says. “The bankruptcy code is filled with procedures and rules. Just filling out the petition, which is the forms you file to start the bankruptcy process, is very complicated.”