Do You Need a Bankruptcy Lawyer? When to Hire One for Chapter 7 or 13

No rule requires you to hire a bankruptcy lawyer for Chapter 7, but a mistake can be costly, and foreclosure, wage garnishment, valuable property, or debts that can't be erased make legal help worth it. If none of those apply, you can probably file without one. Before you start, make sure it's the right time to file for bankruptcy by considering these issues.

Hire a Bankruptcy Lawyer If You Have a Complicated Case

You should talk to a lawyer if your case is complicated. Chapter 7 can stop creditors and wipe out qualifying debts like credit card balances, medical and utility bills, unpaid rent and lease payments, personal loans, and more. But some types of problems require quick action, legal knowledge, and experience. Consider talking to a lawyer as soon as possible if:

• your home is in foreclosure
• you're facing wage garnishment
• your landlord is evicting you, or
• you're involved in a lawsuit.

These problems involve tight filing deadlines, and you can only solve some issues with Chapter 13, which is too complicated for most people to file without a lawyer. For instance, Chapter 13 is usually the only way to catch up on missed payments and save your home from foreclosure or your car from repossession.

The bottom line? Be sure you know the differences between Chapters 7 and 13, and which would best meet your needs. If you plan to file for Chapter 13, or you have a challenging Chapter 7 cases, seek legal advice.

A Bankruptcy Lawyer Will Help You Protect Valuable Property

A lawyer can help you keep your property by making sure each item is protected. Chapter 7 is a "liquidation" bankruptcy, so one of the biggest filing risks is losing property. The bankruptcy trustee will sell anything you can't protect with a bankruptcy exemption. (11 U.S.C. § 522.)

Exemptions vary by state because your state decides what you can protect. But you'll likely be able to keep things needed to work and live—like a modest home and car, furnishings, a television, tools needed in your profession, and an ERISA-qualified retirement account—but not much else.

Bankruptcy law doesn't protect luxury items, like expensive jewelry, designer clothing, collections, and valuable artwork. Household items worth more than the typical garage sale price won't be exempt either. Rental property, stock, stock options, whole life insurance, and cash in a bank account are also hard to protect.

Finally, talk to a lawyer if you own a home or car that you'd like to keep. You'll need to protect all your equity with a bankruptcy exemption, and if you're behind on finance payments when you file, you'll lose the property either during or after Chapter 7 when the lender uses the lien to recover it. Filing for Chapter 13 might be the better option.

A Bankruptcy Lawyer Will Tell You If You Can't Erase Your Debts

Some debts, called "nondischargeable debts," can't be wiped out in bankruptcy, and nondischargeable debt rules get confusing quickly. Here are some examples.

• You can't erase spousal or child support arrearages in Chapter 7 bankruptcy, leaving you responsible for them after the case, and you must pay the balances fully in Chapter 13.
• Student loans are generally nondischargeable. However, you can file an adversary proceeding and eliminate them by proving that, because of undue hardship, you are unlikely to ever repay them. But erasing student loans in bankruptcy is challenging without legal help.
• You can discharge income tax debt if you meet qualification requirements, but generally, the tax must be at least three years old.
• Debts for death or injury caused by drunk driving aren't dischargeable, and fraud-related debts aren't dischargeable if a creditor objects.
• Marital property settlement obligations and tax debt paid with a credit card aren't dischargeable in Chapter 7 but are in Chapter 13.
• Liens against your property don't go away in bankruptcy except in particular circumstances.

If you have any of these obligations, you'll want to talk with a lawyer. (11 U.S.C. § 523(a).)

A Bankruptcy Lawyer Will Explain Which Debts You Can Erase

Chapter 7 can erase most unsecured consumer debt, and you don't need a certain amount of debt to file for Chapter 7. Because many people can repay $10,000 or less through other means, you'll want to tally the amount you could erase in bankruptcy and make sure it's enough to make filing worthwhile.

Here are some of the debts you'd be able to discharge:

• credit card balances
• car loans (if you plan on letting go of the car)
• medical bills
• past-due rent
• utility bills
• deficiency judgments after repossession
• payday and other personal loans, and
• money owed on leases and contracts, like gym memberships.

Don't include student loans, your current mortgage if you plan to keep the home, past-due tax debt, or support payments and arrearages in this calculation.

Finally, ask yourself whether you could pay off your debt another way or whether you think you might incur more debt in the future. If you answer yes to either part, filing might not be for you. Filing for bankruptcy will negatively affect your credit score for up to ten years, and you're only entitled to a Chapter 7 discharge once every eight years, so you want to be sure it's available when you need it most. (11 U.S.C. § 727(a)(8).)

Do You Qualify for Chapter 7 Bankruptcy?

You qualify for Chapter 7 if you pass the Chapter 7 means test, although some are exempt, including people whose debts are primarily business debts and some military members. If you're required to take the means test, you'll have to prove that either:

• your household gross income, averaged over the six months before you file, is below your state's median for your household size, or
• you don't have enough money left after expenses to make reasonable creditor payments through a Chapter 13 repayment plan.

You'll also need to complete a credit counseling course before filing and pay the court filing fee, which is currently $338. (11 U.S.C. § 707(b).)

Do You Have an Unusual or Tricky Ownership Interest?

Sometimes people own property they don't typically think of as an asset, but if it's not listed and covered with a bankruptcy exemption, you could lose it in Chapter 7, or be required to pay its value in Chapter 13. If one of the following situations applies, you probably won't want to file without consulting a lawyer first:

• you have a claim or lawsuit against someone
• you haven't received your tax refund yet
• you might receive an inheritance soon, or
• you're an independent contractor or have an ownership interest in a business.

People with interests in a business should also learn about small business bankruptcy.

Are You Married?

Yes, married people can file Chapter 7 together, but it's more complicated, even if only one spouse files. For instance, did you realize that a married person filing alone must disclose the nonfiling spouse's income, but if they're living apart, they can claim expenses for two households? That's just the tip of the iceberg. It's a good idea to let a lawyer help you work through the details.

Next Steps: Bankruptcy Lawyers Will Answer Your Questions

If you don't have any of the problems we've listed above, your case is likely simple enough to file without a lawyer. But other issues can exist, and sometimes you need to file for bankruptcy fast. So it's a good idea to get legal advice before deciding to take the DIY approach, and many bankruptcy lawyers provide the initial consultation free of charge.