The Truth About Zero Down Bankruptcies: The Dangers of Filing a Bankruptcy Without Thoroughly Reviewing Documents

Bankruptcy is a difficult and often overwhelming process that can leave individuals and families feeling helpless and uncertain about their future. For those struggling with financial hardship, bankruptcy can provide a fresh start and a chance to rebuild their financial lives. However, some law firms advertise zero down bankruptcies as an easy solution, leaving many wondering if this is too good to be true.

The truth is that zero down bankruptcies are not always the best option for those seeking relief from debt. While they may seem like a quick fix, there are many hidden dangers and risks associated with this type of bankruptcy filing. In this article, we will explore the truth about zero down bankruptcies and the dangers of allowing a bankruptcy lawyer to file without thoroughly reviewing the documents.

The Truth About Zero Down Bankruptcies:

Zero down bankruptcies involve a two step process where a person hires a bankruptcy attorney and signs two retainer agreements.  The first agreement only hires the attorney to file an emergency petition.  Then, the bankruptcy lawyer has the client sign a second “post-petition” retainer agreement immediately after the case is filed which covers filing the rest of the bankruptcy schedules, statements, etc. 

The initial retainer agreement typically involves paying only the $400.00 which covers the $338.00 filing fee and cost of pulling a credit report.  The bankruptcy lawyer then files an emergency petition that only lists the creditors and provides the Court with enough information to open the case.

The second retainer is then presented to the client which typically involves paying another $2,000.00 to $3,000.00 over a period of payments and the client is given three options: 1) proceeding without a bankruptcy lawyer, 2) finding a new bankruptcy lawyer, or  3) retaining the same lawyer to finish the bankruptcy.  

The bankruptcy code gives a person 14 days to complete their emergency petition in order to avoid the case being dismissed.  As such, the firm then gathers documents from the client and proceeds to draft the remainder of the schedules and statements and then works with the chapter 7 bankruptcy trustee throughout the remainder of the case.

The Problem with Zero Down Bankruptcies:

The problem with zero down bankruptcies is that the bankruptcy lawyer cannot give  the client financial or legal advice before the case is filed if he files the case without reviewing the clients’ situation.  Consumer bankruptcy lawyers help their clients by analyzing their clients’ financial situation before the case is filed and drafting the bankruptcy documents accordingly.

If a bankruptcy lawyer doesn’t learn about problems until after the case is filed then he has to deal with problems that he may have been able to avoid.  

For example, if a lawyer files a case without thoroughly reviewing the documents then the client might be shocked to find that he did not qualify for a chapter 7 bankruptcy because his income was too high or he might find that he had more assets than he realized that he had which may be subject to being sold by a chapter 7 trustee.

While a court in Florida has ruled that no money down bankruptcies are legal as long as they use the two contract method described above, they should only be used sparingly when a person has no other choice but to file immediately.

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