Ten Steps of Obtaining Bankruptcy Protection

Step 4

Hire an attorney
and prepare your bankruptcy case

By now an hour and a half to two hours has gone by. Your head is spinning with numbers or numbness and the attorney across the desk is asking you if filing a petition in bankruptcy is what you want to do. Three questions are in the front of your mind:

For most people, in the final analysis, the first two questions answer themselves. The third question simply begs more. You think to yourself: "I am too broke to pay my creditors, how on earth can I afford to file bankruptcy?"

This single aspect of contemplating bankruptcy plagues everyone equally. The answer to the question is answered with a question: How can you afford to NOT file bankruptcy? The cost of filing bankruptcy through this firm is broken down here. The cost of NOT filing bankruptcy is substantially more. For example, in the Chapter 7 context, let's assume you have $35,000 in unsecured debt (credit card or personal loan debt). At current minimum monthly payment standards (4%), to keep the creditors from suing you and eventually garnishing up to 45% of your gross earnings from your paycheck, you will have to pay them at least $1,400 per month. Paying the minimum monthly payment is essentially an interest-only payment so, after paying the minimum on your $35,000 debt for say, two years, you will still owe $35,000 (after having paid interest of $33,600).

In total, the cost of filing for bankruptcy though this firm is approximately $1,700. How can you NOT afford to pay a one-time payment of 4.9% of your total debt in exchange for relief from ever having to pay off the principal balance - ever?