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If you have been reading about filing bankruptcy lately, you have probably read a lot about “no money down” bankruptcies, promising to get you the help you need at no cost. It sounds great, but before you commit, you need to make sure you understand what you are getting into, and exactly what you are getting.

These advertisements are referring to Chapter 13 wage earner plans. In a Chapter 13, the debtor (the person filing bankruptcy) makes monthly payments in order to repay some or all of his or her debt. If the debtor has higher income or needs to stop a home foreclosure, a Chapter 13 is the way to go. These payment plans usually go on for 3 to 5 years.

However, in many situations, a Chapter 7 case will stop your creditors from trying to collect from you and provide you with a discharge, or forgiveness of your debt, in a much shorter time (4 months or so) without having to make any monthly payments at all or give up any assets. It’s true that all attorney fees in Chapter 7 must be paid up front. This is because any debt owed when the case is filed will be wiped out—including attorney fees. But, those fees are generally less than half the attorney fees that you will have to pay in a Chapter 13 case. That’s right—“no money down” doesn’t mean “no cost.” It just means they are paid over time. Generally, Chapter 13 attorney fees are more than double Chapter 7 fees and include an added commission that is paid to the Chapter 13 Trustee—just like paying interest. Paying for things with interest over time is often the cause of financial trouble in the first place!

So, if you pay a $3,700 attorney fee through your Chapter 13 plan (which is standard), with the commission you will pay a total of almost $4,000 in attorney fees, compared to $1,200 to $1,600 in most Chapter 7 cases.

When considering a “no money down” bankruptcy case, ask the lawyer these questions:

  1. Do I qualify for Chapter 7?
  2. Would Chapter 7 get me the help I need?
  3. How much does Chapter 7 cost?
  4. How much does Chapter 13 cost?
  5. Do I have to file Chapter 13?
  6. Why are you recommending Chapter 13?
  7. How long will I be in Chapter 13? How long would I be in Chapter 7?
  8. Are you recommending Chapter 13 so that you can charge a higher fee?

There is often a very good reason to file Chapter 13. Just make sure you ask the right questions, that you know exactly what you are getting into, and that you are acting in YOUR best interest.


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