Filing a bankruptcy with “no money down” can sound like an attractive option when a person is faced with pressure from creditors, wage garnishment, possible repossession of an automobile or foreclosure. But, it is important to know the typical cost, both short term and long term of this option and whether or not a “no money down” bankruptcy filing is right for you and your family. Despite how attractive it may sound at first glance, “no money down bankruptcy filing” is not right for everyone and in fact can be potentially detrimental for you and your family if it is not the right option for you.
First, what is a “no money down” bankruptcy filing? It is important to initially understand that there are typically two components to the money necessary generally for you to pay to file a bankruptcy. The fee for the attorney’s services and the filing fee paid to the Court. First, the Court’s filing fee and then a discussion about attorney fees.
The filing fee for Chapter 7 bankruptcy is presently $335 and $310 for Chapter 13. The Federal Bankruptcy Court may permit an individual or couple to pay the Court’s filing fee in installments upon application and approval of that application by the Court. The Court requires that Official Form B 3A – “Application for Individuals to Pay the Filing Fee in Installments” be completed and filed with the Court in order for the Court to consider a request for the filing fee to be paid in installments. Official Form B 3A contains the following instructions and information:
“You may apply to pay the filing fee in up to four installments. Fill in the amounts you propose to pay and the dates you plan to pay them. Be sure all dates are business days. Then add the payments you propose to pay. You must propose to pay the entire fee no later than 120 days after you file this bankruptcy case. If the court approves your application, the court will set your final payment timetable.”
The form further advises that:
– You must pay your entire filing fee before you make any more payments or transfer any more property to an attorney or bankruptcy petition preparer, or anyone else for services in connection with your bankruptcy case; – You must pay the entire fee no later than 120 days after you first file for bankruptcy, unless the court later extends your deadline. Your debts will not be discharged until your entire fee is paid; and – If you do not make any payment when it is due, your bankruptcy case may be dismissed and your rights in other bankruptcy proceedings affected.
As the form states, if the Application is approved, the Court will enter an Order and set the payment schedule. It is important to understand that the decision to commit to paying the Court’s filing fee in installments requires serious thought and that decision should not be undertaken lightly. You should not make a decision about the payment of your filing fee before you speak with an experienced bankruptcy attorney about your options in bankruptcy. If a case is
dismissed and a person files another bankruptcy case within a year of the dismissal the Bankruptcy Court must specifically continue the protection granted when a bankruptcy is filed. In other words, the protection is not automatic in the second case if a case is dismissed within a year of the date the second case is filed.
Now a word about attorney fees. Attorney fees are paid to compensate an attorney for services performed. Depending on the charge for those services and the service the attorney provides this is money well spent. It is not advisable to file a bankruptcy without an attorney. (For additional information regarding filing a bankruptcy without an attorney see the post on this web site “I am thinking about filing bankruptcy without an attorney, is this a good idea?”). For Chapter 7 bankruptcy cases there is law which indicates that if an attorney is owed money at the time the case is filed that attorney is a creditor of his or her client and that debt may be subject to discharge as well. Therefore, as a policy matter most attorneys will not file a chapter 7 bankruptcy case until the attorney fees are paid. After the attorney fee is paid, attorneys that file bankruptcy cases will deposit the filing fee into a “trust account” until the case is filed and the filing fee is then paid to the Clerk of the bankruptcy court. Because the fees to the attorney have been paid before the case is filed, most attorneys will not recommend that an application to pay the Chapter 7 filing fee in installments be filed because of the risk of losing the investment of time and money (the attorney fee paid) if an installment of the filing fee is not paid.
For a Chapter 13 bankruptcy, the situation can be different. Under certain circumstances, an attorney may advise a client to file a chapter 13 bankruptcy without paying the attorney a portion of the attorney fee prior to filing. A pending Sheriff’s sale on real estate that the client wants to keep and catch up payments on may be an example of a situation where the Chapter 13 needs to be filed quickly and there is no opportunity to raise funds to pay the attorney filing the Chapter 13 for his or her services prior to the filing of the Chapter 13 bankruptcy. The attorney then collects a fee over time by Order of the Court from the payments made to the Chapter 13 Trustee. Generally Chapter 13 bankruptcy costs you more in the long run and therefore is not the best option for everyone. (For additional information about Chapter 13 bankruptcy versus Chapter 7 bankruptcy see the post on this web site “Chapter 7 or Chapter 13 Bankruptcy – Which is Best For Me and For My Family?”). Under certain circumstances as part of a Chapter 13 bankruptcy filing it may be appropriate to consider an application to pay the filing fee in installments. However, this determination should always be made on a case by case basis after careful consideration of a person’s situation.
It is important for you to learn what you and your family qualify for and which option best serves you and your family and maximizes your success in rebuilding your financial future. The choice of filing Chapter 13 versus Chapter 7 bankruptcy is one of the most important factors in rebuilding your financial life. I would urge you not to rely alone on information in an on-line ad or on a web site (even this one). Instead you are much better served by an in-person personalized assessment by an experienced bankruptcy attorney who will guide you in determining whether Chapter 7 or Chapter 13 bankruptcy is the best option for you. The experienced bankruptcy attorneys at Kinkade & Associates would be pleased to meet with you and discuss your situation in a FREE in-person initial consultation. Remember, your free initial consultation is in person and with an experienced local bankruptcy attorney that concentrates in
debt relief. After all, your financial future is too important to settle for less than the individual personalized service Kinkade & Associates provides.
Learn your options. Do not fall for on-line gimmicks or “one size fits all advice.” Instead, call Kinkade and Associates to learn what is best for you and your family.