As in other areas of law where the courts are involved, in cases of bankruptcy, an attorney is not absolutely required. People often represent themselves in court. Many of the cases I take on are with men and women who have gone that route and been told by either the presiding judge or a trustee monitoring the case that the situation is a mess. It’s always a good idea to consult an attorney before heading into court on your own.
How much debt do you have to accumulate before considering bankruptcy? People come to my office saying they’re $15,000, $20,000, or $25,000 in debt. They want to know if they’ve hit the “magic minimum amount” needed. There is no such magic number. A person earning minimum wage who is $9,000 in debt may need bankruptcy relief as much as someone owing three times that amount. That’s because it’s easy for a “manageable” debt to double or triple in a short period of time.
As I tell my clients, debt is quicksand. As time passes, with finance charges and interest, you can get deeper and deeper in debt.
The right time to consult a bankruptcy attorney is the moment you feel overwhelmed by debt. Even if filing for Chapter 7 or Chapter 13 bankruptcy turns out not to be the right option, an attorney can advise you on what you should be doing to manage your debt. It may cost some money up-front for a lawyer to develop an effective debt-reduction plan—but you will likely save money, and your good credit, in the long run.
There are some serious drawbacks to declaring bankruptcy. For one thing, it remains part of your credit history for at least seven years. Looking to rent an apartment? Landlords often use bankruptcy as a reason to deny a rental or to require a larger security deposit. Want to open a bank account? After filing for bankruptcy, you’re considered a severe risk by Chex Systems (used by banks and credit unions to assist these institutions in risk assessments). This makes even a simple thing like having a checking account very difficult.
What are the upsides to filing? First of all, this is an opportunity to discharge many of your debts and get a fresh start on your finances. There’s also the enormous relief of getting that debt off your shoulders and hopefully easing some of the strain you’re experiencing with your loved ones.
Like me, most bankruptcy attorneys are first and foremost debt-relief attorneys. Our job is to analyze a client’s financial situation and advise them on their various options, such as debt negotiation, debt consolidation or other avenues of debt relief. Ultimately, the client makes the final choice.
So, yes—in many cases bankruptcy is worth considering as an answer to your debt problems. Whatever happens, don’t make the mistake of applying for credit cards without reading the fine print. You may find yourself locked into an interest rate of 19% or higher—for most people, that’s the worst possible situation to be in.
Are you in need of legal counseling? The Law Offices of Ian S. Topf offer free consultation in a variety of issues, ranging from bankruptcy, family law and estate planning to traffic violations and landlord/tenant disputes.