Options If You Can't Afford a Chapter 7 Bankruptcy Lawyer

Many debtors have a difficult time affording the fees charged by attorneys for Chapter 7 bankruptcy. But payment options exist. If you can't afford a Chapter 7 bankruptcy lawyer, consider whether one of the following might work for you:

• stop making payments on debts that will get wiped out in bankruptcy and pay your attorney instead
• borrow the fees from a friend, family member, or even your employer
• retain a bankruptcy lawyer who will handle creditor calls while you pay fees over time
• file on your own
• obtain assistance from a free clinic, legal aid society, or pro bono attorney, or
• file for Chapter 13 bankruptcy and pay attorney fees through your repayment plan.

You'll also learn why paying your bankruptcy lawyer with a credit card isn't an option. If you're considering Chapter 13 as a way of financing bankruptcy fees, you'll want to understand the differences between Chapter 7 and Chapter 13 bankruptcy.

Paying a Bankruptcy Attorney Instead of Certain Creditors

When you file for Chapter 7 bankruptcy, the court—and your creditors—assume that you'll stop making payments on bills that will get discharged (wiped out) in your bankruptcy case and use the funds to pay legal fees instead. For instance, credit card payments, medical bills, past-due utility payments, and personal loans (such as payday loans) usually qualify for a discharge.

However, once you fall behind on payments, it can be challenging to catch up. So you'll want to be sure that you'll qualify for Chapter 7 before using this strategy (a bankruptcy attorney can help with the assessment).

If you want to keep a house, a car, or another type of property that you're paying for on credit and that you pledged as collateral to secure loan payment, you'll need to stay current before and after the bankruptcy. Otherwise, the lender will be able to take the property.

Borrowing Attorneys' Fees

Most people feel a great sense of relief after meeting with a bankruptcy lawyer, and you'll likely want to get the process started right away. Many people who don't have the funds turn to friends and family—sometimes even employers—and find most understanding when it comes to a request for help with bankruptcy fees. It could be because it's cheaper to help someone fix a financial problem once and for all using bankruptcy instead of helping out on an ongoing basis.

Other Required Fees

Filing for bankruptcy comes with costs other than attorneys' fees. Bankruptcy filers must take two educational courses and pay a bankruptcy filing fee (although low-income filers can often get both waived).

The bankruptcy filing fee is an amount due when you file your initial paperwork with the court clerk. The fees change periodically, but you can find the current cost for both Chapter 7 and Chapter 13 cases in Bankruptcy Filing Fees and Costs.

If you plan to file for Chapter 7, you might qualify for a fee waiver if your income is within 150% of the federal poverty guidelines. Otherwise, you might be able to pay the fee in up to four installments. To apply for either, you'll complete and submit the official request forms along with your initial bankruptcy petition. The court will notify you if the judge approves the waiver or installment arrangement.

If you opt for an installment plan, it's essential to make timely payments. Otherwise, the court might dismiss your bankruptcy filing. (You'll have to file a motion asking the court to reopen your case, as well as pay the entire filing fee.) A fee waiver isn't available in Chapter 13.

You can find information about the two required courses in Credit Counseling & Debtor Education Requirements in Bankruptcy.

Retaining a Lawyer to Field Creditor Calls While Making Payments

The automatic stay order that stops creditors from collecting doesn't go into effect until you file the bankruptcy case. However, once you hire an attorney, you can cut down on annoying calls by instructing creditors to call your lawyer instead of you.

Some lawyers will let you pay a retainer as low as $100 and then pay the remaining attorneys' fees in installments. However, even though many lawyers offer payment plans, they won't file your case until all fees are paid in full—and for a good reason. Any amount owed to your attorney would get wiped out in the bankruptcy filing.

Also, keep in mind that this approach will cut down on annoying calls while you save for your attorneys' fees. Still, it won't stop creditors from engaging in other collection activities, such as garnishing your wages or levying against a bank account.

Filing for Chapter 7 Bankruptcy Without an Attorney

You aren't required to have an attorney when filing for bankruptcy relief. Whether you should, however, will depend on how complicated your case is and how comfortable you are researching the law and filing on your own.

In general, people who have a simple case will be better able to complete a Chapter 7 bankruptcy. For instance, if your income is below the state median, you have little or no property, you can wipe out all or most of your debt, and your creditors aren't likely to allege fraud against you, preparing your case will be possible.

However, keep in mind that filing for bankruptcy without a lawyer isn't easy. Bankruptcy laws are involved. If you aren't willing to put in the necessary research time, you'll risk losing unprotected (nonexempt) assets. Or, you might learn that none of your debts will be discharged in bankruptcy.

All Chapter 7 cases require you to fill out extensive bankruptcy forms, research exemption laws (to protect property) and follow all local court rules and procedures. If you aren't comfortable doing the work—and assuming the risk—consult with a bankruptcy lawyer. If you'd like to file on your own, consider using a good bankruptcy self-help book.

You'll find step-by-step instructions on how to file for Chapter 7 bankruptcy in How to File for Chapter 7 Bankruptcy, by Attorney Cara O'Neill and Albin Renauer, J.D. (Nolo).)

Free Clinics, Legal Aid, and Pro Bono Attorneys

Resources are available to debtors who can't afford a bankruptcy attorney, but they vary depending on where you live. Some bankruptcy courts have free clinics to help debtors file for bankruptcy relief on their own. Contact your bankruptcy court to determine the services it offers or a list of free services or programs available in your area.

In most states, legal aid societies and pro bono attorneys provide free legal services or assistance to low-income individuals. Contact your local legal aid society, state bar, or local bankruptcy lawyers to find out about aid for people who wish to file for Chapter 7 bankruptcy but can't afford an attorney.

Filing for Chapter 13 Bankruptcy

Filing for Chapter 13 bankruptcy allows debtors to pay all or a portion of their attorneys' fees through their repayment plan, which can be great if you can't pay all the attorney fees upfront. But this chapter doesn't work for everyone. It's primarily for debtors who can afford to pay back a certain amount of their credit card balances and other unsecured debt. Or for filers who need to catch up on mortgage arrears, back car loan payments, or tax debts. If you don't have enough income to afford to pay into a Chapter 13 plan, you won't qualify.

Further, some bankruptcy courts don't allow Chapter 13 cases designed to pay only attorney fees through the plan—and the reasoning makes sense. You would have to pay the Chapter 13 bankruptcy trustee a percentage that you wouldn't pay in Chapter 7 so financing fees via Chapter 13 are more costly than it might seem. Other courts don't automatically prohibit fee-only Chapter 13 bankruptcies but consider any particular circumstances surrounding the case before deciding whether to allow it as in the best interests of the filer.

Can You Pay a Bankruptcy Lawyer With a Credit Card?

The answer is no. Bankruptcy lawyers can't advise you to incur more debt shortly before a bankruptcy filing for anything other than necessary services, such as food, gas, and warm clothing. Charging unnecessary luxury items and services on a credit card or taking out cash advances shortly before bankruptcy can get you into trouble, even if you intend to pay the credit card charges. You're still incurring debt when the bankruptcy attorney processes the payment.

So don't expect your lawyer to agree to payment from you by credit card. However, attorneys can take credit cards from friends or relatives who are willing to pay the fee for you. The only requirement is that you disclose who paid for your legal services in your bankruptcy paperwork—which is the case anytime someone pays on your behalf, regardless of how payment gets made. Learn more about what you should expect from your bankruptcy lawyer.

You'll Get Stuck Paying Credit Card Charges Made Shortly Before Bankruptcy

Lawmakers recognize that some people considering filing for bankruptcy could be tempted to run up debts before filing a case—and that wouldn't be fair to creditors. Bankruptcy law has provisions that make many of those last-minute debts potentially nondischargeable.

For instance, there are two ways a creditor could challenge a charge made shortly before filing:

• a luxury item purchased on credit, or cash advance, might be considered presumptive fraud, and
• any credit purchase made when you have no intention to repay the debt could also be fraudulent in bankruptcy.

In either case, the creditor could file an adversary proceeding (lawsuit) in your bankruptcy case to challenge the discharge of the debt. Keep in mind that it is permissible to charge necessary items, such as food and needed clothing.