Filing for bankruptcy can feel stressful, but the process can reset your finances and allow you to create a more stable fiscal foundation for the future. However, bankruptcy should be a last resort solution, as it will not only cause considerable damage to your credit score, it will also remain on record for 7 or 10 years, depending on the type.
An experienced bankruptcy lawyer will help you navigate the process to help you decide the type of bankruptcy to file for, correctly value your property and determine which debts can be wiped away or still need to be paid.
While you can go it alone, filing for bankruptcy without a lawyer can lead to disastrous results. According to the American Bankruptcy Institute, less than 50% of debtors filing for Chapter 7 without the assistance of a lawyer had their debts discharged. Conversely, 94% of debtors represented by Chapter 7 bankruptcy lawyer cases had their debts discharged.
Continue reading to learn more about what a personal bankruptcy lawyer can do to make your filing less stressful.
What does a bankruptcy lawyer do?
A bankruptcy lawyer acts as your advocate throughout each step of the process while providing practical legal advice. The lawyer explains all the necessary paperwork and documentation you need to complete and keeps you from missing key deadlines during this time-sensitive process. Filing for bankruptcy is a straightforward procedure, but a consumer bankruptcy lawyer will prevent you from making the type of missteps that could keep the court from discharging your debts.
Your lawyer will provide guidance as you enter the bankruptcy process and help you better understand:
- If bankruptcy is the best option for your financial situation
- The different types of bankruptcies and whether to file for Chapter 7 or Chapter 13
- How long the bankruptcy process takes from start to finish
- The documentation you need to provide and the forms you need to complete
- The assets you can protect
- What comes next after filing for bankruptcy
With the assistance of an experienced local bankruptcy lawyer, you can meet your state’s filing requirements and get a fresh financial start.
Types of personal bankruptcies
When you’re filing as an individual, there are two main types of bankruptcy.
- Chapter 7: The most commonly chosen option, a Chapter 7 bankruptcy is also known as a liquidation, though this is in fact not quite accurate. According to debt.org, almost 96% of Chapter 7 filings are considered no-asset cases. This means that the filer, either an individual or a business, doesn’t have enough equity for a court-appointed trustee to seize and sell off (liquidated) in order to pay creditors, and will therefore likely keep their property. Chapter 7 bankruptcies typically take between 4-6 months, but after that time, filers will usually have all but some of their unsecured debt discharged. Debts that remain include: alimony and child support, property liens, some taxes, and (usually) their student debt. There’s an eight-year waiting period between Chapter 7 bankruptcy filings, and it can stay on your credit report for up to 10 years after discharge.
Cost - between $1,500 and $3,000; including attorney and trustee fees
- Chapter 13: Also known as a reorganization, a Chapter 13 bankruptcy filing stops foreclosures or repossessions so that debtors can enter a court-mandated debt repayment plan for (typically) 3-5 years. That plan will include backpayments and paying off at least some of their insecure debt, but it will allow them to keep their home or car. Once the repayment plan period is over, all remaining unsecured debt might be discharged. This type of bankruptcy is meant for people with reliable incomes or sole proprietors, and represents a little less than 30% of bankruptcy cases. A Chapter 13 filing can stay on your report up to 7 years after discharge.
Cost - Cost - between $3,000 and $5,000+; including attorney and trustee fees
Types of business bankruptcies
These are the most common types of business bankruptcies, but there are also others, such as Chapter 9, 12, and 15.
- Chapter 13: For sole proprietor businesses, this takes the form of a small business repayment plan. The amount that must be repaid depends on the business’ income, how much it owes, and the value of its property.
- Chapter 7: A business that must close down and is underwater with debt obligations can file for a Chapter 7 bankruptcy, surrendering all assets for liquidation by a court-appointed trustee. Once the process is complete, creditors are paid to whatever extent possible. Unless owners made themselves personally responsible for any debt, they are then free and clear.
- Chapter 11: This type of bankruptcy buys a business time to reorganize its operations, assets, and debts — while protected from creditors. Chapter 11 filings increased during the beginning of the COVID-19 pandemic in 2020, as many businesses had to shut down.
What you can expect when hiring a bankruptcy lawyer
Knowing what to expect when hiring a personal or business bankruptcy lawyer allows you to enter the process with the right expectations. Filing for bankruptcy won’t magically wipe away all of your debts at the cost of a damaged credit report. The best bankruptcy attorneys will explain the advantages and disadvantages of filing, and provide you with an honest assessment of your financial situation once the process is complete.
A contract, or retainer agreement
Hiring a Chapter 7 or Chapter 13 bankruptcy lawyer starts with signing a retainer agreement. This standard agreement is a contract between you and your lawyer that outlines the legal services you will receive and the conditions for representation required by the attorney.
Your retainer agreement should include the following:
- Scope of representation. This lays out in writing the services you’re hiring a lawyer to provide, such as filing a Chapter 7, 13 or 11 bankruptcy. Importantly, you need to understand what services your lawyer will and won’t provide.
- Attorney fees and court costs. A retainer agreement should include how much you need to pay an attorney to represent you and an estimate of what your bankruptcy filings will cost. Most attorneys charge a flat upfront fee for filing Chapter 7 bankruptcy.
- Attorney and client responsibilities. The agreement should also outline each party’s responsibilities during the filing process. For example, clients must swear that their information is accurate and truthful. Attorneys must always promise to uphold their client’s interests and not disclose any private information. This will set expectations for behavior that each side will need to meet.
Ongoing communication and legal assistance
Even though filing for bankruptcy is straightforward, that doesn’t mean you won’t have questions. Your lawyer should remain open and willing to offer answers at any time during the process. Constant communication will help you understand the protections bankruptcy offers and keep you up to date on where your case is in the filing process.
Your lawyer will also assist with any legal issues that come up during your case’s processing. For example, the court will issue an immediate automatic stay that legally prohibits creditors from attempting to collect debts. However, some creditors may ignore the stay, which violates the protections afforded by bankruptcy. Your lawyer can petition the court to hold creditors in contempt if they don’t stop all communication and attempts at securing payments.
Complete handling of your case throughout the bankruptcy process
Your lawyer should handle every aspect of filing for bankruptcy from start to finish. Not only does this include step-by-step instructions, but you should also receive valuable advice and guidance about which debts the court will discharge and which will remain.
Explaining which debts are dischargeable and non-dischargeable
Whether you need a Chapter 11 bankruptcy lawyer for your business or a lawyer to handle your personal finances, the goal when filing is to have the court discharge your debts.
When the court discharges your debts, you’re no longer liable and don’t need to continue paying them. Bankruptcy laws clearly define the types of debts that can and cannot be discharged. The majority of consumer debts, such as credit cards and medical bills, are eligible for debt relief. However, certain types of debt, such as student loans, child support, taxes and alimony, cannot be discharged.
A lawyer will work to identify the debts you can reasonably assume the court will discharge and which you will still need to pay once the filing is complete.
Helping you protect your assets with a bankruptcy exemption
In addition to discharging debts, bankruptcy is designed to help shield certain assets from creditors. Assets fall into one of two categories — exempt and non-exempt — and your lawyer will help you determine where your assets fit.
Non-exempt assets usually include:
- Cash, bonds, stocks and investments
- Valuable possessions like art, antiques and collectibles
- Secondary vehicles
- Secondary homes
- Luxury clothing
Assets you can typically exempt include:
- Non-luxury vehicles
- Pension and income retirement funds
- Standard household appliances
- Work-related tools and equipment
- Necessary household furnishings
- Non-luxury clothing
- A portion of available home equity
Each state has its own exemption system, which means the type of assets you can protect will vary. Your lawyer will know state laws and how to use existing exemption rules to limit losses.
Preparing and filing your bankruptcy paperwork
Filing a petition is the most complicated part of the bankruptcy process, where hiring a lawyer makes the most significant difference. State courts require a detailed listing of your outstanding creditors and debts and that you present this information using a specific format. Failure to properly list this required information will reduce the number of debts the court decides to discharge.
Fortunately, an experienced bankruptcy attorney will know how to handle this process, and complete and file all necessary paperwork. Your lawyer will begin by asking you a series of questions about your debts and having you disclose all documentation related to your financial situation. After reviewing all the relevant information, your attorney will draft the necessary documents and file your bankruptcy petition. This marks the start of the bankruptcy proceedings.
Representing you at court hearings
A lawyer will be your advocate at any court-mandated hearings or when dealing with creditors. A bankruptcy judge will usually hold discovery hearings to assess your current financial situation and identify the types of debts you hold. The court will use this information when determining which debts to discharge.
As part of assessing your case, the court will hold a meeting of creditors that allows debt collectors to enter evidence that challenges your bankruptcy claims. Creditors may attempt to dispute the amount you owe or make arguments against having their debt discharged. Your lawyer will defend your interests during these hearings to ensure that as little debt remains as possible.
Do you need a lawyer to file for bankruptcy?
Do you need a lawyer to file bankruptcy? No. You can file a bankruptcy petition without hiring a lawyer for representation. However, trying to go it alone robs you of the expertise that comes from hiring an experienced bankruptcy lawyer.
Without an attorney, you’ll need to identify and complete all the required forms accurately, meet court-mandated deadlines, and argue your case to a judge. That’s a lot to ask, especially if you’ve never filed for bankruptcy or petitioned a court. The difficulty may help explain why less than 50% of defendants representing themselves in bankruptcy hearings have their debts successfully discharged, according to the American Bankruptcy Institute.
Filing for bankruptcy means that money is likely tight. But trying to save money by not hiring a lawyer could cost you more in the long run.
How much is a bankruptcy lawyer?
The cost of hiring a bankruptcy lawyer varies slightly from state to state, but the average fee nationally for representation in a Chapter 7 bankruptcy is around $1,250, per debt.org. You may need to pay more if hiring a large law firm, so consider hiring an independent attorney specializing in bankruptcy to find the best price available.
The type of bankruptcy you file also determines the cost. The average national fee for Chapter 13 cases is roughly $3,000 due to the increased complexity of these filings. Hiring a lawyer to handle Chapter 11 and other business-related bankruptcies may be more expensive.
There’s no such thing as an emergency bankruptcy lawyer, so you don’t need to worry about paying for expedited service. Just take the time to call around and ask for quotes on the cost of bankruptcy representation from individual attorneys as well as local law firms. This will help you find the most affordable bankruptcy lawyer in your area.
How to find a good bankruptcy lawyer
Hiring the right bankruptcy lawyer can be the difference between getting the fresh financial start you need, and finding yourself broke and devoid of any valuable assets. Treat the process like a hiring manager trying to find the best candidate, and don’t settle for the first attorney that returns your call.
Ask all relevant questions about the bankruptcy process, a payment plan, the garnishment of wages and anything else you want to know in advance. An excellent prospective attorney will take the time to answer your questions thoroughly.
If a lawyer is dismissive or impatient with your questions or only answers in short sentences, don’t expect them to act much differently during your bankruptcy proceedings. Your choice matters, so don’t be hasty with your decision.
Use a lawyer referral service
A lawyer referral service can match you with an experienced attorney and give you an idea of how much you should expect to pay for representation in your market. You should be able to schedule a free consultation with a bankruptcy lawyer, so use these meetings as an opportunity to interview each candidate.
Get recommendations from friends and family
Nothing beats a personal recommendation from a trusted friend or family member. Your loved one can relate their experience working with the attorney, the outcome of their case and whether they were satisfied by the representation they received.
Check client reviews
Review sites like Angie’s List and Yelp help you learn more about the experiences other clients have had working with an attorney or law firm. Read reviews to find evidence of any red flags suggesting a lawyer isn’t a good fit, such as poor communication, unsatisfactory outcomes and one- or two-star ratings.
Ask them about their legal experience
An experienced lawyer knows how to file for bankruptcy to get their client the best possible outcome. Feel free to ask a prospective lawyer how many bankruptcy cases they’ve handled in their career and what steps they will take to ensure your case achieves the desired outcome.
Contact a bankruptcy lawyer near you
Filing for bankruptcy can offer you a fresh start and a chance to escape crippling debt. After completing the bankruptcy process, you can work to improve credit score ratings and rebuild what you’ve lost. Setting that foundation for future financial success requires protecting your assets and eliminating as much debt as possible. Don’t make the mistake of tackling this critical process alone. Contact a bankruptcy lawyer in your area to learn more about what professional representation can mean to the success of your case.
The information provided on this page is for educational purposes only, is not intended as legal advice, and does not establish an attorney-client relationship. [Money] is not a law firm or lawyer referral service. Results are not guaranteed. The decision of which attorney to hire can be important and should not be based only on information on this page. Consult with a legal professional for individual legal advice.