Too Broke To Go Bankrupt

I didn’t make up the title. Those words headline a CNN Money Magazine article on May 7, 2012.

Quoted sources explain how the cost of filing bankruptcy steadily increased after passage of bankruptcy “reform” by the U.S. Congress in 2005. The so-called “Bankruptcy Abuse Prevention and Consumer Protection Act”, or BAPCPA, added more requirements to the filing process, with the intention of reducing the number of filings.

The average cost of filing a Chapter 7 bankruptcy is over $1,500 according to the National Bureau of Economic Research.

Add to that number the cost of post 2005 mandatory pre-bankruptcy credit counseling and a debtor education course required before final discharge is entered. The American Bankruptcy Institute did a study indicating these classes cost an average of $85 together.

Putting the icing on the cake, bankruptcy court filing fees increased in 2011. Chapter 7 court filing fees went from $299 to $306. Chapter 13 fees jumped from $274 to 281.

That may not seem like much, but remember we’re talking about financially strapped individuals and families facing job loss, illness, sometimes foreclosure or other roadblocks like unrelenting creditors who refuse to negotiate and instead jack up interest rates, fees and other charges.

The then-president of the National Association of Consumer Bankruptcy Attorneys, Billy Brewer is quoted in the article pointing out that:

“Congress decided to make the process much more difficult and there’s much more paperwork involved, so attorneys are spending double the time they used to just help someone file.”

Even though we all have bankruptcy software and assistants and some even use outsourcers, the fact is that bankruptcy papers are filed under oath, and filers have to “get it right”. The individual and attorney face dire consequences for “getting it wrong”.

As the director of consumer education for Credit.com puts it:

“It’s too complicated now, and too much of a minefield. Make a mistake and your case is dismissed.”

So, how do you deal with the high cost? Tax refunds are being used by an estimated 200,000 consumers. Also, after a legal consultation and heart-to-heart talk and decision to file, stopping creditor payments can free up cash flow needed to pay the attorney fee.

Calculate how much debt will be discharged in the Chapter 7 bankruptcy, and the filing fee is relatively low by comparison. In other words, if the bankruptcy discharges $20,000 to $30,000 or more in debt, the $1,500 or more in filing costs is a deal.

My office offers a free 20 minute consultation. We can find a credit counseling agency that offers lower cost if the classes are taken online. We can also offer a pre-filing payment plan. I am licensed in Massachusetts and New Hampshire.

‘Too Broke to Go Bankrupt’ is a clever headline. But, thinking about it, the costs, while unnecessarily inflated by an act of Congress, still offer relief from massive debt for those who qualify and peace of mind against constant collection harassment.

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