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Justin Harelik, the Bankrate.com Bankruptcy Adviser9 questions to ask before bankruptcy

Dear Bankruptcy Adviser,
I am in the process of filing Chapter 7 bankruptcy. I am trying to decide whether or not to go with a document filing service or an attorney. An attorney costs five times the amount as the document service and I really cannot afford the attorney fees. Can I do this on my own?
-- Lisa

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Dear Lisa,
Yes, you can still file on your own, and many people do. In fact, even after the new bankruptcy law of October 2005, the same percentage of people qualify for bankruptcy as before (approximately 98 percent). However, I would not be acting as an attorney if I did not inform you that "pro se"-filed petitions (the name for those that file on their own) have a much higher case-dismissal rate than attorney-filed petitions. Most attorneys have years, even decades of experience; while a pro-se filer only has hours of experience.

The key determinant to whether you file successfully or not is the complexity of your case. If your case is more complex, that is, if you have different kinds of assets, then knowledge of the laws in your state will be critical to filling out the paperwork properly and receiving a bankruptcy discharge.

A lot of the answer to this question, Lisa, depends on how good you are at filling out forms accurately, reading and understanding the fine print on the documents, and researching information relevant to your case. Without knowing your "Bankruptcy IQ," as it were, there are several ways your case can become more complex, and it might be to your advantage to work with an attorney.

Signs of a complex case
The answers to these nine questions will show how complex your case is, and whether you need an attorney or can file by yourself.
9 questions to ask before bankruptcy
1. Do you own a home?
2. Do you have child support obligations?
3. Are you behind in your taxes?
4. Have you been using your credit card?
5. How long have you lived in your state?
6. What's your income?
7. What's the average income in your state?
8. Do you have a stock portfolio?
9. Do you owe on a car loan?

1. Do you own a home?
A certain amount of equity in your home can be protected but how much varies from state to state. There are also provisions that pertain to whether you have recently divorced or been widowed. Especially important is the valuation of the home, which can greatly impact whether you file Chapter 7 bankruptcy or a Chapter 13 payment plan. I retained a client who originally filed on her own, thinking that she could protect her house. After filing, the trustee assigned to her case sent her a letter that he would be forcing her to sell her house or she would have to convert to a Chapter 13 bankruptcy payment plan.

2. Do you have child support obligations?
Child support obligations now receive a much higher priority than before. You must include in your petition any child support obligation you owe or are entitled to receive.

3. Are you behind in your taxes?
If you have delinquent taxes then you will need to contact the IRS and receive a history of those taxes. Some may be dischargeable, but you will need to do the legwork to determine this.

4. Have you been using your credit card?
One kind of fraud is charging up your cards by buying assets, then declaring bankruptcy to wipe the debt away. Trustees are very alert to this kind of behavior. There are legitimate reasons cards can be charged prior to filing; however, increasingly creditors are challenging bankruptcies to receive a percentage of the debt back.

5. How long have you lived in your state?
Most states require that before you can receive your state's bankruptcy protections you must be able to prove that you are a resident for at least the past two years.

6. What's your income?
If you make more than the average income for your state, you might not be eligible for Chapter 7 bankruptcy.

7. What's the average income in your state?
You'll need to find out. I once saw a pro-se filer have his case rejected even though he was only making $1,500 per month. He did not understand the acceptable expenses he could include and the trustee had no obligation to educate him. As a result, he has a bankruptcy mark on his credit report and may not be able to receive a bankruptcy discharge.

8. Do you have a stock portfolio?
Whether you have a portfolio or you have your own corporation, even if your stock is valueless, your stock interests must be listed on the petition as well as who handles the books and who else owns stock (if anyone).

9. Do you owe on a car loan? 
After the new law, car payments must be reaffirmed. This is not so complicated but does require some additional paperwork.

Lisa, you may be one of many people with the simplest of profiles, i.e., you have credit card debt and that's pretty much it. If so, the paperwork is much easier and you can probably obtain a discharge without an attorney. Remember, however, that a percentage of Chapter 7s will be audited for accuracy. Make sure that you disclose everything. Do not keep a credit card with a balance off the petition. Do not "forget" to list any assets. The success of your petition depends on your ability to honestly and accurately execute the documents. If your case is basic and you are confident in your ability to handle the paperwork, I say go for it.

Justin Harelik is a practicing attorney in Los Angeles. To ask a question of the Bankruptcy Adviser, go to the "Ask the Experts" page and select "bankruptcy" as the topic.

Bankrate.com's corrections policy -- Posted: Nov. 1, 2006
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