John Roska: How bankruptcy works

John Roska: How bankruptcy works

Q: How much does it cost to file bankruptcy? Do I have to have a lawyer? What is the process, and how long does it take?

A: The filing fee for the most common kind of bankruptcy is $335. That's for a "Chapter 7." The filing fee for the less common "Chapter 13" bankruptcy is $310.

Those fees can be paid in installments, or waived. If your household income is below 150% of the poverty guideline ($2,981 a month for a household of 4), you should qualify for a waiver.

A Chapter 7 bankruptcy is often called a "straight" bankruptcy. It eliminates your unsecured debt. That's debt with no collateral, like medical bills and credit cards.

Secured debts, like home mortgages and car loans, are either "reaffirmed," so you keep paying them, or get turned into unsecured debt by surrendering the collateral. The newly unsecured debt can then be discharged.

A Chapter 7 takes about 3 months from filing to complete.

Chapter 13 repays as much of your debt as possible. Its repayment plan gives you up to 5 years to pay off or catch up on your debts.

A Chapter 13 bankruptcy aims to pay off secured debt in full, or catch you up on your payments. Any income left over goes to pay as much of your unsecured debt as possible. Depending on the extra room in your budget, that means your unsecured debt gets anywhere from 1 to 100 cents on the dollar.

The Chapter 13 repayment plan means it's supposed to last a while — usually 3 to 5 years.

Since the 2005 "reform" of bankruptcy law, you must complete credit counselling before you can even file, and then a separate "debtor education" after you've filed. They can't be done at the same time, since one must be pre- and the other post-filing. They can be done in person, online, or over the phone; last about an hour; and result in official certificates you must have to file and then finish your bankruptcy.

Spouses who jointly file for bankruptcy must each complete both courses. They can attend together, though.

As with the filing fees, the fees for credit counselling and "debtor education" can be waived.

A do-it-yourself bankruptcy is possible, but not easy. The local bankruptcy court's website for "pro se" filers (ilcb.uscourts.gov/pro-se-debtor-guide) lists 20 different forms that must be filed. It'd be kind of like completing your own tax return, by hand, but with no handy computer programs to help.

Finally, many people who want a bankruptcy don't really need one. If all your income and property is "exempt" from collection, you're already protected against your creditors. (Your income's exempt if you're unemployed, or take home less than $371.25 a week from employment. Your property's exempt if you have less than $4,000 in the bank, and not much else.)

Bankruptcy may stop creditors from bugging you for payment, and from suing you, but the exemption laws already prohibit them from taking from you anything that's exempt.

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