When a consumer sees an attorney about their debt problems, they want that attorney to determine the best ethical solution, involving them spending the least money and the least amount of time. For most people, that is going to mean either Chapter 7 or Chapter 13 bankruptcy.
They may also end up in an active bankruptcy case that takes ten times longer than necessary.
Types of Bankruptcy
The goal of Chapter 7 bankruptcy is to keep everything that you own, and pay back nothing to your unsecured creditors. (If you wish to keep your house or car, you would still have to make those payments.) A typical Chapter 7 case is over in less than five months.
Chapter 13 is the type of bankruptcy which may require the client to pay back some or all of the money owed to the creditors. A typical Chapter 13 case will last three to five years.
If someone is qualified to file a Chapter 7 case, I want to place them in this type of bankruptcy as it will cost them much less money than a Chapter 13, and it will be over much faster. That also means that getting one’s credit score back up will happen much more quickly, since the case is over in five months versus five years.
Not Everyone Qualifies for a Chapter 7
There are a few reasons why someone may not qualify for a Chapter 7 filing. It could be because their income is too high, or the amount of assets is too much, or they need time to pay back missed payments on their mortgage or car. At the same time, I have found that some attorneys push people into a Chapter 13 even though they can easily be in Chapter 7 instead.
One of my clients said they had a consultation another attorney who recommended they file a Chapter 13 bankruptcy. They would need to pay $450.00 per month into the Court for five years for a total of $27,000 as part of their Chapter 13. The attorney would receive at least $4,000.00 of that, with the Bankruptcy Court Trustee also receiving over $1,000.00.
A Bunk Appraisal
I asked the client why the other attorney recommended a Chapter 13. The client was told she had too much equity in her home and that it was worth too much money to qualify for Chapter 7. But from what the client told me, her house wasn’t really worth that kind of money. The county assessed value appeared to be too high.
We had her house appraised and found it was worth $35,000.00 less than the county's assessed value, which meant she qualified for a Chapter 7 case. The appraisal cost her $400.00 and she saved $27,000.00.
That is why you must be very careful which attorney you choose. Pick the wrong one, and it could be a $27,000.00 mistake. Call us today for a free consultation to assess which bankruptcy chapter is appropriate for you.