Q and A
Saturday, Feb 10 2007 9:20 PM [appearing in Sunday, Feb 11, 2007's paper]|
Last Updated: Saturday, Feb 10 2007 9:26 PM
Bankruptcy can be a frustrating and confusing experience.
Many who are in debt don't know enough about the topic.
Bakersfield bankruptcy lawyer Phillip Gillet recently spent some time attempting to sort through the mess. The following are excepts from our interview:
What should the average consumer know about bankruptcy?
"Bankruptcy is still available. There is a common misconception related to the new law last year that bankruptcy wasn't available. Bankruptcy still is available.
"You should consider bankruptcy early on in the financial process. It seems to me that most people come to bankruptcy at a point when they have no other options and have kind of backed themselves into a wall. Often consulting with someone early on in the process is helpful to them.
Why do most people file for bankruptcy?
"Most people file bankruptcy related to job loss, medical problems or divorce. The studies out there have shown those are the things that cause financial problems."
Are there things people can do to prevent it like not being too overextended and being month-to-month with your bills?
"Obviously setting up a budget and figuring out how much money you actually have, keeping track of where expenses go, those type of things. The less debt you have is obviously better. Those are all things consumers have control over."
At what point should you consider filing for bankruptcy?
"That's a decision that's very personal. One of the things that people struggle with in bankruptcy is the ethical, emotional and sense of obligation to pay your debts. That varies widely from person to person. When I do consultations I always tell people, 'It's not my job to tell you when to file bankruptcy or when not to file bankruptcy. My job is to tell you what your options are and what the law can do for you. Now it's up to you to decide what to do with that.'"
How does filing for bankruptcy help people?
"The main thing it does for people, is it eliminates the stress. There is a high amount of stress associated with creditors calling, getting served with judgements, lawsuits, that type of thing. ... It gives them the fresh start the bankruptcy code always envisioned. People that are behind on houses, in foreclosure, it gives them time to cure the default and keep their home. It also would do the same thing for a car they are behind on that is going to get repossessed or already has been repossessed."
How long does the bankruptcy process typically take?
"If you do a Chapter 7, where most people keep their homes and their cars and discharge their debt, that takes about four or five months from the time of filing until you receive your discharge notice. The discharge notice makes the debt no longer legally enforceable. If you are doing a Chapter 13, which is a reorganization, involving a mortgage or car loans that are in default or paying tax debt, those actually take three to five years. The reason is you are making payments spread out over three to five years. Basically the first two months of your case is where you are doing all the work."
How much does it cost?
"That varies on the complexity of the case. I think I remember reading that United Airlines had spent $335 million dollars in attorneys fees on bankruptcy. Obviously the average consumer isn't going to spend that kind of money. A basic Chapter 7 case in the Bakersfield area, most practitioners are charging $1,200 plus the court filing fee of $299. You are looking at around $1,500 to do that. A basic Chapter 13 case, which is the reorganization, is about $3,500 plus a court filing fee of $274. However, most attorneys will will start those reorganizations with $500 plus the filing fee. So for under $800 you can get a Chapter 13 started and the rest of your payments are paid as part of your monthly payment to the plan. It's relatively inexpensive, especially considering the amount of debt that debtors are often able to get out from under."
How does it affect your credit and how long does it stay on your record?
"It is a penalty. Like any penalty, if you made a late payment last month it hurts your credit a lot more than a late payment five years ago. ... The penalty to your credit lessons as time goes on."
What resources are available to those considering bankruptcy?
"The most important resource that consumers have is most bankruptcy attorneys will give you a free consultation."