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What if you are too poor to file for bankruptcy? Pt. 1

This seems to be an odd statement. Bankruptcy is designed to help those who have been overwhelmed by financial circumstances and allow them to receive an economic “fresh start.” How could you be “too poor” to use a tool that is designed to help the financially distressed? Not surprisingly, bankruptcy is not free. There are filing fees with the court and many people hire an attorney to assist with the bankruptcy filings and that all costs money.

Most file either a Chapter 7 or a Chapter 13. A Chapter 7 bankruptcy lasts about six months and results in the discharge of the majority of debts. However, there are debts, like child support and some taxes that cannot be discharged. In a Chapter 13, the debtor has between three to five years to repay some of their debts, and the majority of the rest are discharged at the end of the plan.

For one woman in Kansas, who was suffering severe economic hardship. She had been garnished 17 times and had three vehicles repossessed. Her first choice would have been Chapter 7, as she had no secured debts, such as a car or a mortgage, and a Chapter 7 would quickly provide her with a discharge. 

In a Chapter 7, attorney fees must be paid up front, and she could not afford the attorney’s fees for a Chapter 7. So, she proposed filing a Chapter 13, which allows the attorney’s fees to be paid over time in the plan. This would allow her three years to pay this cost. However, she did not propose to pay her unsecured creditors anything.

In our next post, we will look at the issues this raised. (Continued.)


Source: bna.com, “Debtor Can Confirm ‘Fees Only’ Chapter 13 Plan,” Daniel Gill, May 12, 2016

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