How can I pay for a bankruptcy when I am broke?
This is quite possibly the most frequently asked questions I hear. After all, if you cannot pay your debts and need to file a bankruptcy, where are you supposed to find the $1k-$2k it will cost to pay your bankruptcy attorney?
Here are some things to consider with regard to paying for bankruptcy.
If you have no money at all, no job, and no property that you could sell to pay your attorney’s fees, you may not need a bankruptcy.
A bankruptcy eliminates debts and protects you from creditors. In some situations people literally have nothing to their name and no income. We call these people “judgment proof” because even if they end up getting sued by a creditor, the creditor will simply be pounding sand with their paper judgment unable to collect. Thus, if you don’t have any money or property, then you really do not need a bankruptcy. After all, having judgments against you only starts to impact your life when you do have money or property you want to protect. Truly judgment proof people are rare, however. Most people have a job with wages to garnish, some money in their bank accounts at one point during the month (before their bills are paid), or they have the prospects of future income down the road. These people likely can afford a bankruptcy and I have provided some tips below on where to find the money.
Stop paying your debts and start paying your attorney.
One thing you will learn after meeting with a bankruptcy attorney is that we tell you strange things. For one, we usually will tell you not to pay your credit card bills. If you are going to file a bankruptcy anyway and discharge these debts, there is really no reason to pay them. Some people find that they have some money available after they stop paying their debts. This money can be put towards a future bankruptcy.
Get on a payment plan to get your case started.
I cannot speak for all bankruptcy lawyers, but I offer payment plans for clients without sufficient liquid assets. Generally, payment plans are treated sort of like “lay away” used to be treated at department stores. You pay a little each month towards your case and when your case is fully paid, you will be able to have it filed with the court. Bankruptcy attorneys are considered “Debt Relief Agencies” under the Bankruptcy Code and, therefore, are prohibited from extending credit to you. A “lay away” type payment plan is, however, usually allowed.
Depending on what state you live in you may have to spend down your bank account prior to filing or you will end up losing some of that money in the bankruptcy. Don’t wait until you have $0 in your account. Plan ahead.
For example, in Arizona individuals are only allowed $150 in one bank account on the day they file (married couples get $300). If you have a couple thousand dollars saved as your “last resort” lifeline money, this is the time to use it. In fact, when a married couple in Arizona files a bankruptcy with even $1500 in the bank, the Trustee will take $1200 to pay their creditors. It is much better to use that money to pay your attorney.
Ask for help from relatives and social groups.
Filing a bankruptcy is not very expensive if you think about it. For a very modest fee you will be relieving yourself of thousands and sometimes millions of dollars in debt. Family and friends can often help pay the legal fees to get you back on your feet. In some instances I have even seen churches gather donations to help one of their members. One thing to remember is that filing a bankruptcy is perfectly ethical and legal. It is provided for in the United States Constitution. Do not be ashamed to ask family for friends for help. You might be surprised that mom and dad actually get behind your decision to file and may find out that people you know have also filed bankruptcies
Filing Bankruptcy Without an Attorney
If you are thinking of filing Bankruptcy without an attorney, there are some excellent resources available to help you along the way.