Can You Be Too Broke To File Bankruptcy?

Can you be too broke to file bankruptcy? This question was raised by an article posted on the CNNMoney website May 7,2012 and titled Too Broke to Go Bankrupt.

The article suggested from recent statistics collected by the National Bureau of Economic Research (NBER) that an estimated number of people between 200,000 and one million debtors would be unable to afford the steep cost of filing bankruptcy this year. NBER reports that a Chapter 7, the simplest and most common bankruptcy filed, will cost more than $1,500 in lawyer and legal fees to file in 2012.

One group of professors from several mid-west universities did research on how bankruptcy filings spiked after people received their tax rebates. They predicted some 200,000 debtors would use their tax refunds to file in 2012. From their research, they concluded that the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 has added a lot of paperwork to the bankruptcy process driving the costs of bankruptcy higher.

Many predicted the 2005 law would slow bankruptcy filings down and make it harder to file. With the Great Recession, those predictions went out of the window as record numbers of people filed between 2008 and 2011. Since the Great Recession ended, the filings have leveled back off to the numbers just before the recession began.

Still the NBER research suggests that those people filing today are the ones that can afford to. One of the research members was quoted as saying, “it ended up being the relatively better off, or middle-class consumers who can actually afford to file, and the people with lower incomes can’t afford to file.”

Although this writer does not doubt the validity of the facts presented by the NBER research group, and where this writer feels there are completely broke people who feel they cannot afford to file bankruptcy because of the higher fees, my question is, “Can you afford not to file?”

The idea behind filing bankruptcy is either to protect what assets you own from creditors, and/or to make a fresh new financial start free from creditor collection activities. If you have assets worth protecting, you can find a way to get the money to protect them. If you cannot financially withstand the onslaught of collection agents and garnishments from your wages, you cannot afford not to file.

If you are a financial hardship case, here are a few ways you can afford to file bankruptcy:

  1. You can file Pro Se in simple no asset Chapter 7 bankruptcy, saving the cost of a lawyer. That would leave you around $300 in legal fees to pay and those can be waived under certain financial hardship cases.

  2. You can seek Pro Bono services from lawyer groups who give their time to help those with hardships.

  3. If you still have a job, you can stop making payments to your creditors because the debts will be discharged in your bankruptcy. A bankruptcy lawyer can help you to determine which payments you can stop making in order to raise enough to cover the costs of filing, including his fee.

Can you be too broke not to file bankruptcy? Not really. Being broke is when most of you should file. Ask a seasoned bankruptcy attorney if he thinks you are too broke to file.

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