It is an obvious dilemma.
How can you afford a bankruptcy attorney when you have no money?
Like anything else in law, representation by an attorney – and the quality of the attorney – can make a big difference.
So what can be done to enable the hiring of a bankruptcy attorney?
Chapter 7 or Chapter 13 (or Chapter 11)?
For individuals, your bankruptcy chapter choices will be either Chapter 7 , Chapter 13, or Chapter 11.
The differences have been explored in prior articles and will not be detailed here.
For purposes of this article, the difference in terms of paying attorney’s fees are as follows:
- In Chapter 7, all attorneys fees must be paid prior to the case being filed.
- In Chapter 13 and Chapter 11, some attorneys fees can be paid through the repayment plan after the case is filed.
Thus, it may be easier to pay attorneys fees in cases where you are doing a repayment plan, as you may be required to pay less prior to filing your case.
With that said, here are different ways people have been able to pay for bankruptcy representation.
Do Not Deplete Cash Reserves
Ideally, you have not waited until the last minute to plan for a bankruptcy case.
A certain amount of assets can be exempted (protected) in bankruptcy.
How much depends on the state’s exemption laws that pertain to your case, and which Chapter of bankruptcy that you file.
For a Chapter 7 case in California, for example, you can protect approximately $30,000 of miscellaneous assets, including cash in bank accounts.
This assumes you do not need to use a homestead exemption.
In Chapter 13, you can protect an unlimited amount of assets, but have to pay out over time any amount above your exemptions.
Too many of my clients admirably try to pay their debts for too long.
They run their bank accounts to zero and pull money out of their retirement accounts until nothing is left there.
Retirement accounts are completely exempt.
So if they had looked at bankruptcy sooner, I could have saved them $30,000 plus their retirement.
And they could have easily afforded the attorney fees.
Save Money To File Bankruptcy
If you have some time before filing the bankruptcy, it is possible to save money for bankruptcy fees.
This may not be possible if you have a foreclosure sale in a week and you are filing bankruptcy to stop that.
But in that instance, you would likely be filing a Chapter 13 and a portion of attorney’s fees can be taken from your required monthly plan payments.
In a typical case, one can usually wait several months before filing without problem.
So how do you save the money?
For one thing, you may be able to stop paying on certain debts which are being discharged in the bankruptcy, such as credit card debts.
This could enable some to save a bit.
Of course there are those who have no income or their income barely covers their expenses not even counting credit card and other debts.
Which leads us to the next option:
3. Gifts From Relatives or Friends
Imposing on friends and relatives is never fun.
And it is less so when having to admit that the reason is to file bankruptcy.
But this may be one of those times where it is warranted and necessary.
After all, when you compare this with the cost of having to repay your debts, the decision is much easier.
4. Payment Plans In Chapter 13
As alluded to above, even if you qualify for a Chapter 7 case, it might make sense to do a Chapter 13 case if you cannot afford the attorneys fees.
I have filed cases for such clients and financed my attorneys fees by doing a low monthly repayment plan of around $100 per month for 36 months.
This does not work in all cases, of course. And it may not be the best decision in your case.
As always, it is important to have a consultation with an experienced bankruptcy attorney to evaluate all your options and come up with a resolution that fits best with your situation.
But don’t just assume that you cannot afford quality legal representation in bankruptcy. Representation by a bankruptcy attorney is important, just as it is to see quality medical care or other professional services.