Money Talks, So Should You

Q&A: Should I contact a lawyer before filing for bankruptcy?

Deidra Fulton
by Deidra Fulton, The Garrett Network  (@DeidraFulton)

Yes, you should visit with an attorney prior to filing for bankruptcy. That’s because it’s a formal process which is complex and can have long term effects. And the probability that individuals will make wrong presumptions about their financial future is high without the benefit of informed legal guidance.

Let’s first consider the process. Different rules apply to various types of bankruptcy.

For individual bankruptcy, either Chapter 7 or Chapter 13 rules will apply.

A Chapter 7 bankruptcy is a liquidation proceeding, with the court determining what, if any, assets you must sell. A Chapter 13 bankruptcy does not require that you sell assets to satisfy creditors but rather reorganizes your debts under a formalized plan so you repay them fully or partially within a specified time period.

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Importantly, you cannot choose under which chapter to file or which property to sell, if any. An income eligibility test will be applied to Chapter 7 petitions. You will be required to file under Chapter 13 if your income is above the median income level in your state and the court determines that you are capable of repaying a specified amount of your unsecured debt.

Certain types of debt cannot be discharged, such as tax debts, student loans, domestic support obligations and those obligations which result from fraud or driving while intoxicated.

Also be mindful of the impact a bankruptcy filing may have on your future. Any such filing will remain on your credit report for 10 years. This, in turn, may impact your future ability to secure credit, as well as housing and employment positions. In addition, a bankruptcy filing will likely result in higher interest rates being charged on any credit cards or loans. And perhaps it may even restrict your future access to health care services.

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A bankruptcy filing may require that you shift primarily to a cash payment basis for most financial purchases and services. Any filing will also become a public record.

Considering the ramifications, it’s highly important that you evaluate the big picture, which a bankruptcy filing may have. A knowledgeable attorney can share valued expertise regarding your own state laws, including what can be discharged.

A skilled attorney can also be helpful by ensuring that all filings are submitted properly, as well as by providing valuable guidance.

A bankruptcy filing will impact your current and future finances significantly. You will reach the best decision by being fully informed. And that will result from discussing your situation with an attorney prior to deciding to file for bankruptcy.


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Deidra Fulton, a CERTIFIED FINANCIAL PLANNER™ professional, is the founder and president of Fulton Financial Planning, Inc., a financial planning and registered investment advisory firm. She is a fee-only financial advisor serving clients from all walks of life in the North Texas area.