This is a guest post from my friend, Suzanne Cramer, blogger and social media specialist for Care One Credit.
Times are tough with the economic conditions in the state they are in. Today many Americans looking for the debt relief bankruptcy can provide in their time of need; job loss, foreclosure or a medical emergency are losing this often thought of as a “last resort” option.
According to recent research conducted by the National Bureau of Economic Research, the average cost to file for Chapter 7 bankruptcy protection, the most common form of consumer bankruptcy, has hit $1,500 nationally. That figure prices many struggling to find debt relief out of using Bankruptcy as an option for getting rid of debt. . This year it is estimated that anywhere between 200,000 and one million consumers who would have otherwise filed will be unable to afford to file.
The 2005 Bankruptcy Abuse Prevention and Consumer Protection Act
The BAPCPA act was put in place in an effort to decrease bankruptcy filings by placing road blocks in the way of consumers looking to get rid of their debt in one fell swoop. This left those with low incomes unable to afford to file and pay for all of the bankruptcy associated costs reported by the American Bankruptcy Institute which include:
- The $300 court filing fee
- Debtor education course / mandatory pre-bankruptcy credit counseling (about$85)
- Attorney fees
Fight the Fees
If bankruptcy is the only way out for you, and you can’t afford to file; there are several things you can try to reduce the associated costs:
- Filing fee waiver. If your income is less than 150% of poverty guidelines, you can apply for a fee waiver in Chapter 7.
- Seek pro bono help. Keep in mind, your income must be below the poverty guidelines–$1,862 a month if you are single and below $3,842 for a family of four, to be eligible. If you earn too much, you’re out of luck.
- Do NOT consider representing yourself. Bankruptcy law is complicated. If you make a mistake, it could cause your case to be dismissed, harming your credit just as though you completed the bankruptcy process.
Filing a Chapter 7 Bankruptcy
There’s a lot of red tape, making filling for bankruptcy a seemingly tedious task. It is important to know what you signed on for.
- You must attend a credit counseling session from a government-approved credit counseling agency within 6 months before filing your bankruptcy petition.
- Before your bankruptcy proceedings are discharged, you must complete an approved debtor education course.
- To file a Chapter 7 bankruptcy you must pass a means test to prove you lack the financial resources to pay back your debts.
- If you file Chapter 7, you maintain responsibility for your secured debt (such as a home mortgage or car loan) if it is considered exempt.
- You should keep in mind that not all unsecured debt is dischargeable. For example, Chapter 7 does not eliminate:
- Government student loans
- Fraudulently created debts
- Child support
You may think that there is no alternative to bankruptcy, but you just can’t afford to file–there are other options. Credit assistance programs may be able to help you. You’ve probably seen ads on television or in your yellow pages for debt or credit counseling. Credit Assistance organizations manage your unsecured debt through a debt management program to help you avoid bankruptcy. See the U.S. Federal Trade Commission article Fiscal Fitness: Choosing a Credit Counselor.
Working through Debt Management programs, creditors may offer benefits that can help you avoid bankruptcy for your unsecured debts, such as:
- Lowered monthly payments
- Reduced or eliminated interest rates
- Eliminated late fees
So before you join the ranks of millions of Americans trying to file for bankruptcy consider the alternatives first, you just might find a way that works for you.