How to Afford Chapter 7 Bankruptcy

December 4, 2013

When you come to the end of your financial rope, bankruptcy is a safety net. Bankruptcy can discharge bills you cannot pay, force secured creditors to accept payments over time, save your home, your car, and even your marriage!

But how can you afford to pay all of the bankruptcy fees if you are broke? Paying attorney fees, court fees, and the required credit counseling fees are often beyond the ability of a family struggling with debt. Desperate clients frequently bemoan the same conundrum, “If I had that much money, I wouldn’t pay you; I’d pay my bills!”

While attorneys often get bad rap, this time it’s not deserved. First, consumer bankruptcy fees are very competitive and are cheap compared to other legal services. Additionally, the rate of Chapter 7 success is extremely high, so the client almost always gets what he/she expects—a discharge of debts and a financial fresh start. Finally, all Chapter 7 attorney fees are paid up–front, as a flat fee. There are no hidden fees or surprises, unlike in a divorce or criminal case.

So how are individuals able to afford a quality bankruptcy attorney?

First, the costs may be spread out over time. While your attorney must be paid before filing your Chapter 7 bankruptcy case, you may make payments before your case is filed. When you first retain a bankruptcy attorney, you receive federal consumer protections from the Fair Debt Collections Practices Act. Under that law, once you retain an attorney, a debt collector may no longer contact you directly. This temporarily stops creditor harassment. Also, because you intend to file bankruptcy in the near future, debt collectors usually delay filing lawsuits or attempting garnishments. This also gives you time to pay your attorney.

Most courts permit the bankruptcy filing fee (currently $306) to be paid in installments. A court may allow a debtor to make up to four payments with the final installment paid no later than 120 days after filing the bankruptcy petition (which may be extended up to 180 days for good cause).

Second, you can let Uncle Sam help you file. Many debtors receive an income tax refund in the spring. You may use tax refund money to pay your attorney or bankruptcy fees without penalty.

Third, you may borrow the money from a friend or family member. You can repay this loan after you file bankruptcy without penalty.

Fourth, in some cases it makes sense to withdraw or cash out a retirement fund in order to restructure your finances. Speak with your attorney on the feasibility of this action.

Finally, you can sell property. Sometimes the best way to protect an expensive item from turnover during bankruptcy is to sell it before you file. You are able to use this money to pay your attorney and your bankruptcy fees, as long the property was sold at fair market value.

Financing a Chapter 7 bankruptcy is often a challenge to debtors, but can be accomplished with a little ingenuity. Your attorney has helped many clients afford bankruptcy fees and has suggestions for your circumstances. For more information or a free consultation, please contact the experienced bankruptcy attorney’s at Fears | Nachawati Law Firm by calling 1.866.705.7584 or send an email to fears@fnlawfirm.com.

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