Personal Bankruptcy: Do I Need a Lawyer?

by

Richard Fonfrias, J.D.
Chicago's Financial Rescue & Bankruptcy Lawyer
Fonfrias Law Group, LLC


First, a little background.

Our bankruptcy laws are different from most laws. Instead of being state laws, they are federal laws. This means bankruptcies are handled in a division of the U.S. Federal District Court, called Bankruptcy Court.

Whether you need a lawyer depends on which type of bankruptcy is right for you. And whether you're willing to risk making a mistake and having to start over again.

To help you decide, I'll explain the two types of bankruptcies available to consumers, Chapters 7 and 13, and their key differences.

Chapter 7 - Liquidation
In Chapter 7 (liquidation) bankruptcy, the trustee sells your assets to pay your debts. For the trustee to know this information, the court requires that you create detailed lists of your assets, liabilities, and assets that the law allows you to keep, called exemptions. These include a certain dollar value of equity in your vehicle and your home, as well as tools you use in your work.

In addition to these lists, you have other paperwork, of course. And if you make a mistake in your documents, the Court will reject your bankruptcy, sending you back to square one without any court-ordered bankruptcy protection. The good news is that you can hire a lawyer and not have to pay the lawyer's fee out of your pocket. The money to hire a lawyer comes from the money raised from the sale of your assets. As such, many people decide it makes a lot of sense to hire an attorney.

Chapter 13 - Repayment Plan
In Chapter 13 (repayment plan) bankruptcy, you start by creating a detailed list of your assets and liabilities. In addition to these lists, you have a lot of additional documents, including a plan showing how you intend to repay your creditors over a three to five year period. Then you submit your plan for approval by the Bankruptcy Court. If the court approves, then you make payments to the trustee.

If you make a mistake in your documents, the Court will reject your bankruptcy, sending you back to square one without any court-ordered bankruptcy protection. The good news is that you can hire a lawyer and not have to pay the lawyer's fee out of your pocket. The money to hire a lawyer comes from the money raised from the sale of your assets. As such, many people decide it makes a lot of sense to hire an attorney.

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Don't believe for one second that the mistakes listed above are the only errors that can cause problems. If you categorize some of your assets as "exempt" when they are not exempt according to the law - or if you lose valuable equity in your home because you filed the wrong type of bankruptcy - or if you make any number of other costly mistakes - then you'll discover that you should have hired an experienced bankruptcy lawyer to represent you.

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Filing for bankruptcy is one of the most important life decisions you'll make. If you're thinking about a bankruptcy, please take the time to talk with me before you decide. After all, if you make the wrong decision, it could prove very costly for you and your family.