You can do everything online these days from buying a car to ordering a pizza to filing your tax returns or even declaring bankruptcy.
Huh? Declaring bankruptcy online is a thing?
Yes, you can file for Chapter 7 or Chapter 13 bankruptcy online and go through the whole paperwork and court process yourself, but a word of warning: It’s tricky.
If you don’t have a legal background or someone with a legal background advising you, there are some landmines out there. Filing for bankruptcy is far more involved than ordering a two-topping special from Domino’s. And just so you know: parts of the bankruptcy process – meeting with creditors and pleading your case in court hearings – still must be done in person.
But a great deal of the paperwork and educational requirements can be done online with help from a bankruptcy attorney or a non-attorney bankruptcy petition preparer.
Even if you can figure all that out, you might still need a lawyer to file the electronic paperwork.
Here’s a guide if you’re considering bankruptcy as a way out of financial problems.
Types of Online Bankruptcy
It might pay to know that if you’re struggling with debt you are far from alone. Bankruptcy filings have been cut in half since Great Recession, but 752,160 cases still were filed in 2019 and that number is expected to rise in 2020.
There are two major forms of bankruptcy for individuals, Chapter 7, known as liquidation bankruptcy. and Chapter 13, known as wage earner’s plan.
Chapter 7 bankruptcy is the most commonly used form of bankruptcy, accounting for approximately 63% of cases. An individual asks the bankruptcy court to wipe out unsecured debts like credit cards, medical bills and maybe personal loans. A court trustee tries to pay off as many creditors as possible by selling off non-essential property, which means pretty much anything that has value, but you don’t need it to get by. Common examples are jewelry, art, stamp collection, second car and fur coat.
Chapter 13 bankruptcy is a repayment plan that acts a lot like a debt consolidation loan. You are asked to develop a repayment plan that takes care of all or most of your debts. The repayment plan typically lasts 3-5 years and your assets are protected from foreclosure and repossession while you repay them.
Choosing the right form of bankruptcy is where legal advice could come in handy, but there is nothing preventing you from starting the process “pro se” which means “in one’s own behalf.”
How to File for Bankruptcy Online
You can download bankruptcy forms for free at http://www.uscourts.gov/forms/bankruptcy-forms. Then the fun begins. Here is a seven-step rundown of bases you must cover.
1. Make Sure You Are Eligible
There are qualifying standards that must be met before you can file for either Chapter 7 or Chapter 13 bankruptcy and it makes sense to do research to see what form of bankruptcy you are eligible for.
To be eligible for Chapter 7 bankruptcy, an individual must pass a “means test” that determines if their income is at or below the median income for their state. If not, they may have to file additional paperwork or switch to Chapter 13 bankruptcy.
To be eligible for Chapter 13 bankruptcy, an individual’s unsecured debt must be less than $394,725 and secured debts of less than $1,184,200.
2. Take the Means Test
This is a form that measures an individual’s income, expenses and household size to determine whether they can afford their debts. It compares your average monthly income against the median income of similar households in your state. If your income is below that average, you automatically qualify.
If your income is above the state average, there are other formulas incorporated into the bankruptcy means test, but they are complicated and will probably require getting some legal advice before proceeding.
Before even bothering with the means test, however, review your financial history and research the “median income” for your state. Also, you are not allowed to file for Chapter 7 bankruptcy if it’s been fewer than eight years since you went through a Chapter 7. If you went through a Chapter 13 bankruptcy, you must wait at least six years before filing for a Chapter 7.
3. Receive Credit Counseling
You are required to enroll in bankruptcy credit counseling from an approved agency like InCharge Debt Solutions and complete the course within six months of filing for bankruptcy. The court requires you to have a certificate showing you’ve passed the course before it will allow you to file for bankruptcy.
4. Fill Out Bankruptcy Forms
The first form is a Voluntary Petition, Form B1. Other forms will require information on your creditors, contracts, expenditures and specify any debt repayment plans you have negotiated. You can find these forms on the U.S. Courts website.
5. File a Petition
This will get your case on the court schedule and stop creditors from pursuing action against you. With Chapter 7, the court will appoint a trustee to meet with you and sell your non-exempt property. Any property deemed necessary (home, car, clothing, work-related property, pensions) will be safe, though your house can be foreclosed on and your car repossessed if you miss loan payments.
6. Attend a “341” Creditors’ Meeting
The creditors’ meeting, called a 341 meeting, is where the bankruptcy trustee appointed to your case will ask you questions under oath about your financial situation. Specifically, the trustee will verify your identity, ask about the accuracy of your bankruptcy petition and schedules and give you the chance to reveal any changes that have taken place since you filed your documents.
Creditors are allowed to ask questions about your financial situation, but this rarely happens. In most cases, the meeting will take less than 10 minutes.
7. Attend a Financial Management Course
The list of approved debt education courses is available at Visitjustice.gov. InCharge Debt Solutions is an approved agency with our own online bankruptcy course. The course must be completed within 45 days of meeting with your trustee and creditors.
Since a face-to-face meeting is part of the process, it is incorrect to assume “filing online” means everything can be done via computer. You can also file over the phone, though you are still required to meet with a trustee.
Do I Need a Lawyer to File Bankruptcy Online?
This is where it gets tricky. California was the first state to have consumer electronic filing and that happened in 2014. But it has not caught on. As of 2020, only one other district bankruptcy court has implemented electronic self-representation software.
So, you might need a lawyer to file your case, though you can also hire a bankruptcy petition preparer. Companies offering that service will guide you through filling out forms, but they are prohibited from offering legal advice.
Court employees and judges are also prohibited from offering legal advice. The good news is there are free legal services available through the American Bar Association and Legal Services Corporation.
Bankruptcy Attorney Fees
Hiring a bankruptcy attorney can be costly. Not hiring one, can too.
“Most cases are not that complicated,” said Cathy McEwen, a U.S. Bankruptcy Court judge for Middle Florida. “What is complicated is knowing what exemptions to take and what the expenses will be if you take them. There are complicated legal issues.”
For Chapter 7, costs usually range $500 to $3,500, which must be paid before you file because attorney’s fees could qualify as part of the debt discharged in a successful filing. If you hire a lawyer, the average cost of filing a Chapter 7 bankruptcy in 2018 was $1,450, according to lawyers.com. The actual cost could vary from $500 to several thousand dollars.
For Chapter 13, costs typically range from $2,500 to $6,000, but you don’t usually have to pay the entire fee up front, paying some of it through your debt-repayment plan.
Costs of Filing Bankruptcy Online
There are separate filing and administrative fees for Chapter 7 and Chapter 13 bankruptcy. You can ask the court to allow you to pay them in monthly installment or you can apply to have the fees waived.
Chapter 7 Bankruptcy Fees
The total cost for filing chapter 7 bankruptcy is $335. The fees include:
- $245 filing fee
- $75 administrative fee
- $15 trustee surcharge
*If you have to re-open a Chapter 7 filing, it’s an additional $260.
Chapter 13 Bankruptcy Fees
The total cost for filing chapter 13 bankruptcy is $310. The fees include:
- $235 filing fee
- $75 administrative fee
*If you have to re-open a Chapter 13 filing, the fee is $235. If you have to convert from Chapter 13 to Chapter 7, the fee is $25.
Hiring a petition preparer typically cost about $200, though companies often try to sell you upgraded services that will substantially raise your bill.
After Filing Online
You will want to keep track of notices from U.S. Bankruptcy Courts and the easiest way to do so is online. You will have to determine what computer system the bankruptcy court in your area is using. It could be the DeBN or EBN system and there could be a cost involved for using those systems.
The National Data Center is another online resource you can use to find out what creditors have filed claims against you and who is getting paid through this resource.
Should I File Chapter 7 or Chapter 13 Bankruptcy Online?
To be clear, the question is not just which type of bankruptcy is appropriate to your situation. It’s whether bankruptcy is the right move for you – period.
It’s a complicated process, and you should consider speaking to a credit counselor to determine if there’s another way to deal with your debt. Nonprofit consumer credit counseling organizations receive more favorable terms with creditors, and it’s possible that a debt management plan, debt consolidation loan or debt settlement could be a better solution. You can review your options for free by speaking to a credit counselor.
If bankruptcy is your best course of action, InCharge offers bankruptcy court-approved bankruptcy education courses through PersonalFinanceEducation.com.