$500 to file bankruptcy

$500 to file bankruptcy. Is this a scam?
Some bankruptcy attorneys, including this firm, offer clients the ability to file bankruptcy for $500. Many clients who inquire about this fee are very skeptical especially since the filing fee alone for bankruptcy is around $300. So how does an attorney take on a complex case for such a small amount of money? The answer first has to be directed to which chapter of bankruptcy someone needs to file. Most individuals have the option to file either Chapter 7 or Chapter 13 bankruptcy. A breakdown of each is as follows. Chapter 7 Bankruptcy allows debtors to wipe out their unsecured debt by liquidating non-exempt assets. In Virginia, when you file bankruptcy, you are allowed to keep certain bare minimum assets. These are called exemptions, and most are typically found in 34-4 and 34-26 of the Code of Virginia. When your attorney reviews your assets, he will compare the dollar value of the assets to what you are allowed to keep. If your dollar amount is less than the state exemption levels, you keep everything you own. If your value is higher than maximum limits, you lose asset values above those assets. Most people don’t consider a lot of things assets, but in almost every case, tax refunds for the current tax year, accrued wages that have not been paid and inheritance are considered assets. Many clients lose some things in Chapter 7. Almost all clients lose assets if they receive a very high tax refund every year. Every case is separate, but Chapter 7 serves a unique function, that is to pay debts with your assets. In such a case, you will be hard pressed to find any attorney who would file Chapter 7 bankruptcy for $500. The filing fees for a joint petition are $306 plus a $21 state fee in most cases. Additionally, any attorney would be foolish to file a bankruptcy petition without pulling a credit report for a client, which typically cost about $50 per client. So for a joint married couple, the actual costs are $427. If an attorney is taking your case for $500, they are making $73 for their fee. No one is doing that. A typical attorney fee for a Chapter 7 case should be $700-$1000 depending on the complexity of a case. Accordingly, Chapter 7 attorney should be quoting $1300-$1500. If someone is quoting you less, get it in writing and make sure there are no backend fees that you will have to pay, such as paying the attorney to attend court or the 341 hearing with you. You should be very suspicious of attorneys who are charging substantially less than this. Additionally, all of the fees for a Chapter 7 case should be paid prior to filing. Be weary of attorneys that ask you to pay anything after you file, unless it is for a post filing amendment. Chapter 13 Bankruptcy allows debtors to wipe out their unsecured debt by making payment to those debts over a 3-5 year time period. In Chapter 13, assets are protected under Virginia law, but because the debtor is voluntary making repayment to the Court from their future wages, their assets are almost always protected from liquidation so long as the amount of their repayment exceeds the liquidation threshold creditors would receive in Chapter 7 (the “liquidation test”). So for example, if a person had $5000 of non-exempt assets, and they are facing Chapter 7 or Chapter 13, the difference between the two is that in Chapter 7 they will lose $5000 of their assets whereas in Chapter 13 they will keep their assets, so long as they are at least repaying $5000 to unsecured creditors over 3-5 years. There are other benefits to Chapter 13 as well, such as reorganizing secured loans on motor vehicles, paying arrears on mortgage payments, and paying back taxes without interest and penalties. However, one of the main benefits of Chapter 13 is that the attorney can put his attorney fees into a Chapter 13 repayment plan, so that as you are paying your creditors back, you are financing your attorney fees into the plan without interest. The attorney gets paid over time just like your creditors. This is a tremendous benefit to you as a filing debtor as it allows you to obtain enormous protections for a small amount of upfront money. It also incentivizes your attorney to propose a repayment plan that works for you and your creditors, because the attorney is now a creditor as well. What is very important for anyone filing bankruptcy under Chapter 13, is that, at least in the Eastern District of Virginia, every Chapter 13 attorney receives the same compensation which is fixed by the Court. That amount is currently $5100. So if I receive $5100 from the client up front or $5100 over time, I am getting paid the same money.  Because we have a sufficient volume of clients in Chapter 13, I can take your case with no real upfront money for attorney fees, other than costs, and then wait to get paid, because I am being paid for doing the same thing with previous clients I have done this for in the past. The actual filing fees are $310, plus $100 for credit reports for a married couple. This makes the costs $410. In addition to the filing fees, your attorney is required to mail out your Chapter 13 plan to your creditors, or what is called “serving” the plan.  Bankruptcy rules require that the plan be sent by certified mail to most creditors, so if you have an average of 30 creditors, it will cost around $90 to serve the plan. Because every case is different (some people have more than 30 creditors and some have less), we average our mailing costs are $90 which is how we get $500 per filing. Costs will shift up and down and we only get paid for actual costs, but when we advertise this fee, this is why we say $500 to file for a single person or $650 for a married couple. In addition, once your first payment is established you will need to make that payment at filing so the first plan payment is made and there is no chance your case would be kicked out for a late payment. This protects you and your bankruptcy case from a premature dismissal. We help people file bankruptcy every day. Many people open files with our office under either Chapter 7 or Chapter 13 and find that during processing the other chapter of bankruptcy better suits them. We always strive to file the best bankruptcy for the client and will be happy to help you achieve your financial goals as financially affordable as possible. Feel free to contact our office at 757-301-3636 to make an appointment to discuss your potential case today. The first consultation is free and we can usually get you on the phone with an attorney within a short period of time to answer your questions. We look forward to hearing from you.

Attorney Timothy Anderson 757-301-3636 timanderson@virginialawoffice.com