Any individual who is not able to pay his debts to his creditors (for whatever reason) may be a potential candidate for declaring bankruptcy. Many people who have been caught in the debt trap or have lost all their savings have become unwitting victims of the excessive consumer spending culture. Most kinds of consumer debt usually consist of (ostensibly affordable) home finance car loans, and even monthly credit card payments.
If you feel that you cannot pay back what you owe and your debt situation has become intolerable, you will have to file for bankruptcy. This will happen when your creditors’ bills are greater than your monthly earning capacity.
Alamo Associates has been pitching credit card consolidation offers to consumers that will supposedly protect them from filing bankruptcy. They are offering low rates which seem to good to be true.
The Cost of Bankruptcy Can Be Very High
Suppose you find yourself paying bill after bill and have also lost all track of both interest payments as well as principal amounts. This means that you might not be able to pay even a bare minimum amount every month and, of course, the interest rates will keep on increasing. In this case, you are a definite candidate for declaring bankruptcy.
This holds particularly true if even basic expenses that are a regular part of everyday living such as food, housing expenses, utilities, schooling, clothing, etc are not affordable anymore. Things can deteriorate to such an extent that the person might be forced to use very high interest-based credit cards to pay for the daily expenses of his family.
In such a situation, bankruptcy may look like an attractive option, but appearances can be very deceptive. This holds particularly true if you vector in the cost of bankruptcy into the picture. Since the whole point of declaring bankruptcy is to manage expenses, such high costs can easily make an already grim situation much worse.
Apart from that, your debts will not go away. On the contrary, insolvency will mean that your assets can be appropriated by your creditors. Furthermore, they can even take over your personal assets in many cases. If we vector in the fact that you may potentially lose your car and even your home, it can turn out to be a grim scenario indeed.
The Cost of Bankruptcy Can Make a Bad Situation Much Worse
The decision to file for bankruptcy will almost certainly win you some more time to pay off your extensive debts. In some cases, you can even get rid of them altogether (subject to certain terms and conditions). However, you have to keep in mind that this is a catch-22 situation due to the costs involved.
For example, you might have to pay at least $240 for a very basic filing if you are trying to go about doing it on your own. However, in case you plan on hiring a lawyer, the charges can easily increase substantially.
As of now, there are an estimated two types of bankruptcy for an individual debtor who have decided to declare their insolvency.
o Chapter 13 Bankruptcy
This option is very useful for people who have a fairly regular income. Since they can give a surety that they will be able to pay off their debtors, they are allowed to keep their vital personal assets such as their home (for instance). Apart from that, they will also get an extension for the time required to repay their creditors. The usual extension periods range from 3 to 5 years (approx.) In this case, the cost of bankruptcy consists of the basic filing fee of $235.
o Chapter 7 Bankruptcy
Chapter 7 bankruptcy can eliminate the debts of the person availing this option. But this option is generally suitable for those people who are not in a position to pay back their debts due to their lack of earning capabilities. If their income is below the median for that state, they will be allowed to opt for chapter 7 bankruptcy. In this case, the basic filing fee is $245, and this amount constitutes the cost of bankruptcy.
Other Associated Costs
The filing fee is a mere start here. While it is possible to get a waiver for these fees (the person is bankrupt after all), this is not always the case. In case you fail to get this waiver, you might have to pay additional expenses such as legal opinion charges and court fees. Taken together, these expenses can even go well into the thousands of dollars.
Legal Fees Can Also Increase the Cost of Bankruptcy
Attorney charges are one of the main reasons that can increase the overall cost of bankruptcy. There are many reasons behind this including the location (attorneys who work in high net worth urban areas traditionally charge more than people who are based in rural areas). Apart from that, there are different levels of expertise required. The more complicated the case, the higher the legal fees.
As a general rule, you can vector in lawyer fees ranging from $700 to $800 at the very least and up to $2,000 or more for a very complex case.
It is also possible to file for bankruptcy without a lawyer, but if you make a mistake, the court might dismiss your bankruptcy suit. This is one of the main disadvantages of going on your own. Moreover, bankruptcy judges and the court staff members are now allowed to offer any legal advice whatsoever.
It is possible to find a lawyer who will take the case for you free of cost for public service but such a lawyer may not give the case the same importance as an attorney hired on a proper retainer.
Intangible Costs of Bankruptcy
There are other markedly less tangible costs of bankruptcy for example, the fact that it will inevitably stay on the applicant’s credit report for at least a decade. This means it will be very difficult to get another loan or even find meaningful employment.
It is absolutely imperative that you thoroughly weigh all the costs when you decide to opt for bankruptcy as a way out of your financial troubles.