Can You File Bankruptcy For Free?

If you’ve looked into filing bankruptcy, there’s no doubt about it – filing for bankruptcy is expensive. Most lawyers charge fees that start at $2,000 and go up from there. While many bankruptcy lawyers will allow you to pay in installments, they won’t actually file any paperwork until your fee is paid. That can take months, all the while you are getting farther and farther behind in your bills and debts. So what’s the answer to the question so many people ask, Can I file for bankruptcy for free?

What most people mean by that is probably, Can I file bankruptcy myself? You can file bankruptcy yourself, however you may want to think long and hard about doing this – even if you have instructions for how to file bankruptcy, it’s not easy. Since the bankruptcy laws changed a few years back, there are additional difficulties you will encounter with a slew of paperwork, credit counseling requirements, and a bunch of other things designed specifically to make it harder for you to file. Mess up on piece of paper, and the court can throw out all of your hard work.  The court can’t prevent you or prohibit you from filing yourself, but it’s dang hard, time consuming and confusing.

And it’s not completely free: there are fees around $250 to file your claim with the court.  For truly broke people, you may be able to get fees waived.  That fee is a lot less than $2,000 for a lawyer, but not if you screw it up doing it yourself and wind up with a case thrown out of court.

There are some  bankruptcy alternatives though, which you might consider before you jump into filing.  For people who have a mountain of medical debt, or owe at least twice as much money as they make in a year, then you probably want to go right to a bankruptcy lawyer and get started.   Also, if you are trying to save your home, and you still have a regular job, then using a Chapter 13 bankruptcy might be a way to you stay in the home.

But if you owe less than your annual income, and you’re just really behind on debts, then you might think twice about bankruptcy. Bankruptcy is not a magic pill. Your credit will suffer for years, and the credit you do get offered will be so expensive – high fees and high interest rates – that taking on that new financial burden could put you right back in financial hell.  If your debt is secured debt, like car loans, you may wind up having to give back the vehicle anyway, even if you are in bankruptcy court.

In bankruptcy court, you’re going to have two basic options:  one, to work out a payment plan with your creditors if you qualify for Chapter 13, or two, get discharged, and lose your secured property and home in the process, if you have to go to Chapter 7.  Under Chapter 13, there is a “means test” that will determine whether, and how much, you can pay every month. You have to have regular employment; if you are unemployed, you aren’t’ considered reliable for the payments, and the court will probably make you file Chapter 7 bankruptcy.  Chapter 7 bankruptcy is a liquidation, where all of your debts are discharged, and you start with a clean slate. However your mortgage lender can foreclose on your house to get their money, and your car loan company will repossess your car. Other secured items will have to go back to the lender too.

So, if you’re employed, you can possibly work out the exact same payment plan outside of bankruptcy.  Most credit card companies for example would be happier to work with you than get nothing in bankruptcy court. They might even settle to close out accounts.  And if your car payments are so high that you can’t pay them, then maybe you should be giving back the car anyway, and driving a clunker until you are back on your feet.

If you are not employed, then your creditors can’t get blood from a stone anyway, so to speak.  If you default on credit cards, for example, that will stay on your credit history for seven ear, while a bankruptcy will stay on there for ten!  It’s almost a better outcome to tell the credit card companies, they either work with you to take a little every month, or you will refuse to pay. The worst they can do is get a judgment against you, but if you don’t have any property they can put a lien on, then you are known as “judgment proof”, and there’s not much they can do.  Why spend $2,000 or more on a bankruptcy, when the result will be the same, except you’ll be two grand poorer?

You’d be hard pressed to find a bankruptcy lawyer who will give you this kind of advice. And credit counselors are trained to get you to pay something, anything to your credit card lenders (by the way, payment plans set up with credit counseling agencies will show up as a negative on your credit history too!  They don’t usually tell you that though!)

So before you start trying to figure out where to get $2,000 or more, consider where bankruptcy will really get you. Will you get a payment plan that you might be able to work out for yourself anyway, and avoid bankruptcy? Will you lose everything in a Chapter 7 that the creditors will take away from you anyway, even if you don’t file?  Think over your options, and see if you really, truly need to file bankruptcy – or not.