If bankruptcy is in your future, there are tools online to help you find your way through the maze.
However, it is important to note that while the forms can be downloaded online and there is plenty of help online, the actual filing of the forms, in almost all cases, must be done in person at bankruptcy court.
There is one exception: If an individual is what is called “ECF Certified.”
ECF stands for Electronic Case Files, and is a way documents are filed online with courts. However, the average person must take classes and be ECF certified and approved by the court to file that way.
Attorneys are ECF certified; the average consumer is not. For most of us, that means finding the location of your bankruptcy court (use a search engine) and taking the documents there to file.
In the event that you the consumer need to turn to bankruptcy to solve debt issues – and it should always be an option of last resort — you can file for Chapter 7 or Chapter 13 bankruptcy. Yes, you can go through the paperwork and court process yourself, without an attorney.
But a strong word of warning: It’s tricky. Another word of warning: Because it’s tricky, it behooves you to be careful and precise. A final word of warning: If you’re nervous about being careful and precise, it’s wise to consult with an attorney.
Filing for bankruptcy is far more involved than ordering a two-topping special from Domino’s. Just so you know: parts of the bankruptcy process – meeting with creditors and pleading your case in court hearings – must be done in person.
But a great deal of the paperwork and educational requirements can be done online with help from a bankruptcy attorney or a non-attorney bankruptcy petition preparer.
Here’s a guide if you’re considering bankruptcy as a way out of financial problems.
Types of Online Bankruptcy
It might pay to know that if you’re struggling with debt you are far from alone. More than half a million of us filed for bankruptcy in 2020.
While that number is high, total bankruptcies actually dropped 29.7% from 2019. Jon Lieberman, a bankruptcy attorney with the law firm Sottile & Barile in Loveland, Ohio, attributes the drop in filings to stimulus payments and extra federal unemployment money along with a moratorium on evictions and foreclosures.
“Even car lenders were working things out with consumers,” said Lieberman, the former co-chair of the Consumer Bankruptcy Committee at the American Bankruptcy Institute. “The thought is that after COVID restrictions ease and stimulus money ends that people will start filing again.”
There are two major forms of bankruptcy for individuals, Chapter 7, known as liquidation bankruptcy. and Chapter 13, known as wage earner’s plan.
Chapter 7 bankruptcy is the most commonly used form of bankruptcy, accounting for approximately 69.6% of cases in 2020. An individual asks the bankruptcy court to wipe out unsecured debts like credit cards, medical bills and maybe personal loans. A court trustee tries to pay off as many creditors as possible by selling off non-essential property, which means pretty much anything that has value, but you don’t need it to get by. Common examples of non-essential property are jewelry, art, stamp collection, second house/car and fur coat.
Chapter 13 bankruptcy is a repayment plan that acts a lot like a debt consolidation loan. You are asked to develop a repayment plan that takes care of all or most of your debts. The repayment plan typically lasts 3-5 years and your assets are protected from foreclosure and repossession while you repay them.
Choosing the right form of bankruptcy is where legal advice could come in handy, but there is nothing preventing you from starting the process “pro se” which means “in one’s own behalf.”
How to Find Help Online When Filing Bankruptcy
You can download bankruptcy forms for free at http://www.uscourts.gov/forms/bankruptcy-forms. Then the fun begins. Here is a seven-step rundown of bases you must cover.
1. Make Sure You Are Eligible
There are qualifying standards that must be met before you can file for either Chapter 7 or Chapter 13 bankruptcy and it makes sense to do research to see what form of bankruptcy you are eligible for.
To be eligible for Chapter 7 bankruptcy, an individual must pass a “means test” that determines if their income is at or below the median income for their state. If not, they may have to file additional paperwork or switch to Chapter 13 bankruptcy.
To be eligible for Chapter 13 bankruptcy, an individual’s unsecured debt must be less than $419,275 and secured debts of less than $1,257,850.
2. Take the Means Test
This is a form that measures an individual’s income, expenses and household size to determine whether they can afford their debts. It compares your average monthly income against the median income of similar households in your state. If your income is below that average, you automatically qualify.
If your income is above the state average, there are other formulas incorporated into the bankruptcy means test, but they are complicated and will probably require getting some legal advice before proceeding.
Before even bothering with the means test, however, review your financial history and research the “median income” for your state. Also, you are not allowed to file for Chapter 7 bankruptcy if it’s been fewer than eight years since you went through a Chapter 7. If you went through a Chapter 13 bankruptcy, you must wait at least six years before filing for a Chapter 7.
3. Receive Credit Counseling
You are required to enroll in bankruptcy credit counseling from an approved agency like InCharge Debt Solutions and complete the course within six months of filing for bankruptcy. The court requires you to have a certificate showing you’ve passed the course before it will allow you to file for bankruptcy.
4. Fill Out Bankruptcy Forms
The first form is a Voluntary Petition, Form B101. Other forms will require information on your creditors, contracts, expenditures and specify any debt repayment plans you have negotiated. You can find these forms on the U.S. Courts website.
5. File a Petition
This will get your case on the court schedule and stop creditors from pursuing action against you. With Chapter 7, the court will appoint a trustee to meet with you and sell your non-exempt property. Any property deemed necessary (home, car, clothing, work-related property, pensions) will be safe, though your house can be foreclosed on and your car repossessed if you miss loan payments.
6. Attend a “341” Creditors’ Meeting
The creditors’ meeting, called a 341 meeting, is where the bankruptcy trustee appointed to your case will ask you questions under oath about your financial situation. Specifically, the trustee will verify your identity, ask about the accuracy of your bankruptcy petition and schedules and give you the chance to reveal any changes that have taken place since you filed your documents.
Creditors are allowed to ask questions about your financial situation, but this rarely happens. In most cases, the meeting will take less than 10 minutes.
7. Attend a Financial Management Course
The list of approved debt education courses is available at the Department of Justice website. InCharge Debt Solutions is an approved agency with our own online bankruptcy course. The course must be completed within 45 days of meeting with your trustee and creditors.
Lieberman said anyone considering bankruptcy should take the important first step of using an internet search engine to find the bankruptcy court for their area. Each site has a plethora of information for consumers and filers.
Do I Need a Lawyer to File Bankruptcy?
This is where it gets tricky, but also is very important. The Central District of California in Los Angeles allows online filing for those filing without an attorney, and has since 2014. But the practice has not caught on nationally.
The U.S. Courts website says that you can file on your own, otherwise called pro se. But it cautions that filers must understand the rules and procedures in federal court, the U.S. Bankruptcy Code and the Federal Rules of Bankruptcy Procedure as well as the local rules of the court where the case is filed.
It’s not simple. Lieberman said that it’s almost impossible to file Chapter 13 without a lawyer, and judges and trustees generally discourage filing pro se in all circumstances.
“Bankruptcy is federal law,” Lieberman said. “But every jurisdiction has local rules and all the rules are different. If a motion needs to be filed, that motion may be different in Ohio than it is in Kentucky.”
Each case differs in details, and Lieberman said a consumer could be hurt by improper filing or not having the right information. He points out that non-federal students loans typically are excluded from bankruptcy, but a lawyer may be able to work out an arrangement.
He remembered a man who borrowed money to go to flight school, but had to give up piloting when a car accident left him impaired. An agreement was worked out between the attorney and filer.
“That’s an issue where the attorney really helps,” Lieberman said. “And there are many of those that crop up that can be unexpected.”
Other examples of complications: Filers in Chapter 7 cannot have equity (like a house) and may be forced to sell their house to pay their bills. Married couples do not necessarily both have to file. If the lien on the house or car has a flaw, a consumer could lose one or both. Nonfederal student loans may be discharged if you meet the requirement of the Brunner Test – something not many consumers know about.
“Judges will not accept not having money for a lawyer as an excuse for not hiring one,” Lieberman said. “There’s really no reason somebody should not have a lawyer unless they have the most basic Chapter 7 filing, but even that can create problems.”
So, you might need a lawyer to file your case, though you can also hire a bankruptcy petition preparer. Companies offering that service will guide you through filling out forms, but they are prohibited from offering legal advice. Court employees and judges are also prohibited from offering legal advice. The good news is there are free legal services available through the American Bar Association and Legal Services Corporation.
The general rule of thumb: The simpler the bankruptcy case, the less the need for an attorney. Though in any filing, an attorney could provide help and advice even in filings that seem straightforward.
Bankruptcy Attorney Fees
Hiring a bankruptcy attorney can be costly. Not hiring one, can too.
“Most cases are not that complicated,” said Cathy McEwen, a U.S. Bankruptcy Court judge for Middle Florida. “What is complicated is knowing what exemptions to take and what the expenses will be if you take them. There are complicated legal issues.”
If you hire a lawyer, the average cost of filing a Chapter 7 bankruptcy at the end of 2020 was $1,450, according to lawyers.com. The actual cost could vary from $500 to several thousand dollars.
For Chapter 13, costs typically range from $2,500 to $6,000, but you don’t usually have to pay the entire fee up front. Instead, fees are added as part of the debt-repayment plan. However, for Chapter 13 Lieberman said many bankruptcy courts have what is called a “no-look fee,” a flat rate that everyone pays and the court does not question.
“You can find reasonably priced attorneys everywhere,” Lieberman said. “The prices are reasonable, but the more complex your case the more experienced your lawyer the more the attorney may charge. But there’s no reason to have to pay a fortune for bankruptcy.”
He again urges all to research their local bankruptcy court website. The site for the Southern District of Ohio, for instance, has an entire section on filing without an attorney and links to find an attorney who works for free, he said.
Costs of Filing Bankruptcy
There are separate filing and administrative fees for Chapter 7 and Chapter 13 bankruptcy. You can ask the court to allow you to pay them in monthly installment or you can apply to have the fees waived.
Chapter 7 Bankruptcy Fees
The total cost for filing chapter 7 bankruptcy is $338. A request can be made to pay the fees in installments, though they all must be paid in full within 120 days of filing. Individuals can seek a waiver on the fee if he or she can show their income is below 150% of the poverty line in their state and for their household size.
The fees include:
- $245 filing fee
- $78 administrative fee
- $15 trustee surcharge
Chapter 13 Bankruptcy Fees
The total cost for filing chapter 13 bankruptcy is $313. The fees include:
- $235 filing fee
- $78 administrative fee
Hiring a petition preparer typically cost about $200, though companies often try to sell you upgraded services that will substantially raise your bill.
Online Help After Filing
You will want to keep track of notices from U.S. Bankruptcy Courts and the easiest way to do so is online. You will have to determine what computer system the bankruptcy court in your area is using. It could be the DeBN or EBN system and there could be a cost involved for using those systems.
The National Data Center is another online resource you can use to find out what creditors have filed claims against you and who is getting paid through this resource.
Online help with bankruptcy can be found at several sites.
The American Bankruptcy Institute is a nonprofit that provides research and education on bankruptcy, and shares much of that information on its website. Lieberman said its site has a wealth of information. ABI has more than 10,000 members — practitioners, judges, trustees and academics – and is nonpartisan. Commissions it has launched include advocating for system improvements, as well as ways to help veterans.
The National Consumer Law Center advocates for consumers and helps them through the maze of laws and regulations. The National Association of Chapter 13 Trustees is a primer on filing Chapter 13, and the National Association of Bankruptcy Trustees provides information on Chapter 7.
Should I File Chapter 7 or Chapter 13 Bankruptcy?
To be clear, the question is not just which type of bankruptcy is appropriate to your situation. It’s whether bankruptcy is the right move for you – period.
It’s a complicated process, and you should consider speaking to a credit counselor to determine if there’s another way to deal with your debt. Nonprofit consumer credit counseling organizations receive more favorable terms with creditors, and it’s possible that a debt management plan, debt consolidation loan or debt settlement could be a better solution. You can review your options for free by speaking to a credit counselor.
If bankruptcy is your best course of action, InCharge offers bankruptcy court-approved bankruptcy education courses through PersonalFinanceEducation.com.