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Facing bankruptcy can put you under huge amounts of financial and emotional stress. You may ask, “can you file bankruptcy for free?” The answer is yes, you can.
While declaring bankruptcy can be extremely difficult on you, it can also be a smart financial decision. Filing for bankruptcy can provide you with much-needed relief by eliminating your debt so you can focus on moving forward.
If you want to file bankruptcy using Chapter 7 or Chapter 13, here are some ways of getting your debts eliminated for free.
Can You File Bankruptcy for Free
Chapter 7 and Chapter 13 are the two filing options available to individuals. Typically, the filing fee for these chapters costs around $300. While you can file bankruptcy for free, there is one method you can use first to get creditors and collections agencies off your back. This is especially useful for people who have no way to pay back their loans.
Drop Dead Letter
If you have no assets and no money, and you’re either out of work or your only source of income is through Social Security or disability, don’t file bankruptcy — you don’t need to. You only need to send what is called a ‘drop dead’ letter to your creditors.
A drop dead letter tells your creditors that you have no means to pay them back. This alone isn’t declaring bankruptcy, but if you have nothing to pay and nothing to lose, drop dead letters provide you a legal method for getting creditors to stop harassing you for payments.
The Fair Debt Collection Practices Act gives anyone the right to send a ‘drop dead’ letter to avoid being contacted by creditors for any reason other than to be notified of legal proceedings — if they’re going to sue you to collect payment. If you have no money or assets to take, tell your creditors. They won’t waste their time suing you if you have nothing.
Free Legal Aid
Before you file for bankruptcy, many states and organizations offer free legal counsel.
You may be able to find free legal aid, or find a lawyer who volunteers to handle your case for free (pro bono). The American Bar Association offers a Pro Bono Resource Directory for finding organizations in your area that offer free services to qualifying individuals.
If you’re eligible, you can find legal assistance at no cost through the Legal Services Corporation (LSC). The LSC is a nonprofit that was established by the government to provide financial support for low-income individuals, and they offer legal aid programs in every state in the US.
How You Can File Bankruptcy for Free
The LSC encourages qualifying individuals to work with Upsolve, which is a nonprofit that focuses on helping low-income Americans file for Chapter 7 bankruptcy at no cost and with no hidden fees.
Upsolve offers tools that help you find and complete your forms, and they even provide you a lawyer who reviews your documents. They also provide well-documented bankruptcy guides for each state, so whether you’re trying to file bankruptcy in Georgia or Alabama, they have the resources you need.
Upsolve’s bankruptcy guides are complete with information on how to collect, complete, and file your forms. They also provide information on how to handle exemptions for your property so you can keep essential belongings like your car or truck.
If you need to file bankruptcy for free, Upsolve offers an amazingly kind and generous service.
Reasons Declaring Bankruptcy May Be a Good Idea
If you have multiple disasters strike at the same time — you have medical bills, you lose your job, and you go through a divorce — you can quickly find yourself so deep in debt that you don’t see any way to climb out. There are some obvious benefits to declaring bankruptcy as well as some that may surprise you.
Filing for bankruptcy legally eliminates your debts, and Chapter 7 filing can be done as quickly as 90 days. While this may seem like an obvious benefit, here are some debts forgiven when filing for bankruptcy:
- Medical bills
- Missed rent or lease payments
- Payday loans
- Personal loans
- Credit card debt
Unfortunately, declaring bankruptcy does not get rid of your student loan debt. If you’re interested, you can learn how to refinance student loans. You may be able to get a better interest rate along with other benefits like no-fee refinancing.
Filing bankruptcy gives you legal protections under the court system.
If you’ve been sued and your wages are being garnished — taken from you to give to someone you owe — filing for bankruptcy ends that.
Filing may also help you avoid or delay a vehicle repossession or a foreclosure on your home. The court will give you time to sort out your financial situation by issuing what is known as an ‘automatic stay’. An automatic stay demands that creditors and collection agencies stop their attempts to get repayment from you. It also prevents your utilities from being shut off for 20 days.
Automatic stay can provide immediate relief by giving debtors some breathing room to sort out their financial problems and to avoid harassment during a period of time that is already very stressful.
Peace of Mind
No one wants to file for bankruptcy, but if you find yourself in financial debt that leaves you anxious, stressed, or depressed, then declaring bankruptcy is a legal option provided to help you get out of a bad situation.
While the process of filing will have its own stresses — you’ll have research and paperwork to file — having your debts forgiven will free you to focus on building your future.
There are a lot of resources that can help you find pro bono services and, if you qualify, you can even find assistance to file for bankruptcy for free.
Reasons Declaring Bankruptcy May Be a Bad Idea
Though bankruptcy can be a good financial move in some cases, there are times when it may be a bad idea for you. A few examples are when:
- You own unprotected assets
- You have recently given away or transferred assets
- You acquired your debt fraudulently
You Own Unprotected Assets
Unprotected assets are your possessions which are not safeguarded by protections such as limited liability companies (LLC), limited partnership, corporations, or trusts. For example, if you have property held directly in your own name, that asset is not protected.
Filing Chapter 7 bankruptcy is a good option if you want to eliminate the majority of your unsecured debts — credit cards, personal loans, medical bills. However, Chapter 7 allows a bankruptcy trustee to potentially sell your assets to pay off creditors. These assets include things like houses, boats, and RVs.
There are exemption laws that protect some essential assets like your car, household possessions, wedding rings, and your retirement accounts. But if you have other assets that are unprotected, filing Chapter 7 may be a bad idea. To avoid losing assets, you can file a Chapter 13 which allows you to create a plan to pay off your debts over a period of time, usually 3 to 5 years.
You Have Recently Given Away or Transferred Assets
If you’re going to file bankruptcy, trying to “hide” an asset by giving it away or transferring the title is considered fraudulent. Any assets you have given away or transferred in the 2 years prior to filing for bankruptcy can be seized to pay off your debts. This includes loan repayments or vehicle transfers made to family and friends.
While it’s reasonable to want to pay back friends and family first, your creditors are given equal repayment preference under the law. Because preferences are not allowed, a bankruptcy trustee can take money you paid to family or friends and distribute it to all of your creditors.
If you have given away or transferred assets recently, you should declare this openly when filing. This will avoid the appearance that you are attempting to file for bankruptcy fraudulently which would just lead to more legal troubles.
You Acquired Your Debt Fraudulently
If you acquired any debt through misrepresentation of your assets or with the intention to avoid repaying that debt by filing bankruptcy, you may find yourself in legal trouble.
A creditor may sue you if they believe there is evidence that you fraudulently received a loan from them. If the court determines your debt was acquired fraudulently, that debt will not go away. You will have to repay it.
If you are found guilty of debt fraud, not only will you be required to pay off your debt, but, if you try to defend yourself in court, you may also be charged costly fees.
Being charged with debt fraud is rare, but if you know you have something to hide, filing for bankruptcy may be a bad idea.
Your Credit Will be Affected
Declaring bankruptcy can drop your credit score between 100 and 200 points.
When you file Chapter 7, which forgives your debts fully, that information is made public and it stays on your credit report for 10 years. Filing Chapter 13 will affect your credit for only 7 years, but it requires you to face debt re-payments over the next 3 to 5 years.
While having low credit can make it harder to get loans in the future, being forgiven your debts might be the better trade-off for you. Remember that a lowered credit score is temporary, and you can always raise it over time.
Bankruptcy May Be Your Best Option
Facing bankruptcy can be extremely stressful, but it can also provide you an opportunity to move on with your life and gain peace of mind.
If you qualify, you may be able to find free legal aid. You can use the American Bar Association to find organizations that offer pro bono services in your area. You can also look into the Legal Services Corporation.
If you have a low income, you can file bankruptcy for free using Upsolve. A professional will provide advice for declaring bankruptcy as well as guidance for moving on with your life after bankruptcy.
If you’re interested in planning for the future, you may want to read the 5 steps to planning for your financial future.