If your medical or credit card debt is so crushing that your best debt repayment efforts can’t seem to make a dent, it might be worth considering bankruptcy. It’s something of a last resort, but bankruptcy can offer relief and a chance to start over.
The trouble is, filing for Chapter 7 bankruptcy typically requires you to hire a bankruptcy attorney — at an average cost of $1,100 to $1,500 or more. And if you had a spare $1,500 on hand, you might not need to file for bankruptcy in the first place. In fact, each year, thousands of Americans wait until spring and use their tax refunds to finally hire a bankruptcy attorney they couldn’t otherwise afford.
“There are millions of Americans priced out of a fresh start, too broke to file,” says Rohan Pavuluri, co-founder of Upsolve, a nonprofit legal aid organization that provides bankruptcy assistance to low-income Americans. And filing with the help of a bankruptcy attorney dramatically improves your odds of receiving debt relief, partly because it’s such a complex process to take on by yourself. “You need to go to the court website and print out 23 different forms with complicated words like ‘unsecured nonpriority debt,'” Pavuluri adds.
Pavuluri estimates there are tens of millions of low-income Americans trapped by medical or credit card debt who could benefit from Chapter 7 bankruptcy but can’t afford to file for it. And while it’s typically viewed as the nuclear option of debt solutions, bankruptcy protection exists for a reason: It really can help.
A study by the National Bureau of Economic Research found that receiving bankruptcy protection increased annual earnings by $5,562, decreased five-year foreclosure rates by 19.1 percentage points, and even lowered mortality rates (primarily because debtors who weren’t granted bankruptcy protection suffered worse outcomes in these categories).
And while filing for bankruptcy does put a seven- to 10-year stain on your credit report, most filers actually see their credit score rise in the months after filing — because their scores are already so low that the positive impact of wiping out debt outweighs the black mark of the bankruptcy.
Still, it’s not a step to take lightly. Upsolve users first complete an online screening to see if they might benefit from bankruptcy. Pavuluri says people who don’t own a home, earn less than the median income for their state, and have five-figure medical or credit card debt and a credit score under 600 can typically benefit from their assistance.
“If it looks like they would [benefit], they take an online questionnaire about their finances, upload their pay stubs and tax returns if they have them, and take a credit counseling course that’s required by the law,” Pavuluri says. Their software takes that information and populates all the required bankruptcy forms. “An Upsolve attorney then reviews the bankruptcy forms to make sure they’re complete and accurate. After the review, we deliver the forms to the user, so they can file for bankruptcy to get their fresh start.”
Upsolve grew out of a brick-and-mortar legal aid organization that Pavuluri and co-founder Jonathan Petts ran in Brooklyn, N.Y., from 2016 to 2017, where they helped debtors manually get through the bankruptcy process one at a time. “We realized that much of the process around collecting debtor info and populating the forms could be automated,” Pavuluri says.
“You could say we’re part TurboTax, part traditional attorney,” he adds. “Our software mimics the job that paralegals usually do in traditional law offices. This includes collecting info, following up with the debtor about their taxes and pay stubs, pulling credit reports… an Upsolve attorney then reviews the forms to make sure they’re good to go, just as a traditional bankruptcy attorney would do.”
One difference is that Upsolve users don’t have an attorney present when they appear for their “341 meeting” with the trustee managing their case, while a traditional attorney would attend the meeting with you. But Pavuluri says it’s a simple formality and they help prepare users to represent themselves.
“These meetings are almost always shorter than 10 minutes and the trustees ask questions from a prepared script,” he says. “While it can be intimidating to show up by yourself, once our users realize that virtually no creditors ever show up to challenge their discharge, the meetings are short, and that Upsolve prepares them for their meetings through training videos, they become confident.”
While this may sound too good to be true in an industry rife with predatory “petition preparers,” Upsolve is simply a nonprofit organization whose funders include the Chan Zuckerberg Initiative, Harvard University, former Google CEO Eric Schmidt, the Robin Hood Foundation, and the U.S. government. “We work really, really hard to find foundations, individuals, and government agencies that believe in our mission and agree that funding our work is a great use of their money,” Pavuluri says.
Just remember: The clean slate of bankruptcy isn’t too good to be true, either, but its repercussions are dramatic and long-lasting. Make sure you’re fully aware of the impact bankruptcy will have on your life and finances, and consider whether you might be able to dig yourself free by committing to an aggressive debt repayment strategy instead.
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