The bankruptcy process exemplifies the madness of our legal system. I'm underwater in debt and have no money, so I want to declare bankruptcy. But to declare bankruptcy, I need money to pay for filing fees, mandatory credit counseling, and lawyer fees. What's worse, the 2005 Bankruptcy Law made filing even more expensive, increasing the average cost from ~$900 to ~$1,500.
A recent National Bureau of Economic Research study noted that 200,000 to one million Americans decide not to file bankruptcy because fees are too high.
So what can you do? Here are six ways to pay for bankruptcy if you're broke.
1. Talk to multiple lawyers
Most lawyers charge similar amounts for bankruptcy fees, but there is still variation from attorney to attorney. A lawyer may perceive your case to be simpler and may quote you a lower fixed price, and initial consultations are usually free. Shop around and see if you can find a lower price. You also want to make sure that you find a lawyer who is experienced and who you are comfortable working with.
2. Develop a payment plan with your lawyer
Lawyers also don't always demand the full payment upfront; despite the merciless jokes, lawyers are human and know that declaring bankruptcy is difficult. Often, lawyers will let you pay their fees in scheduled installments. Payments can't be based on credit or loans, but they can be spaced out.
3. Use savings from stopping interest payments
By declaring bankruptcy, you can often stop paying interest payments on unsecured debt (credit cards, health and personal loans, etc.). åÊA successful filing may wipe these debts clean, which is the whole purpose of declaring bankruptcy. The savings from not having to make those monthly payments may be cash available to invest in a lawyer to help you navigate this process successfully.
4. Help from family or friends
Our society has become increasingly individualistic when in the not so far past, we were bound closer to family and community. Reach out to your family and friends. They may be more willing to help than you think, especially if you have sound legal advice that increases that chance that you will be able to get back on your feet in the longer-term.
5. Hard sacrifices, saving, and selling
Absent other easier options, there is the hard road of saving up, deferring as many expenses as you can, and selling items that you may not need. Examine your alternatives and talk to friends about what the best path is. But making some sacrifices in the near-term to do this right may be worth it in the long-run if you can hit the reset button and start clean.
6. Find a pro bono attorney
This is such a great option! Why isn't it higher on the list??? The truth is, it's super difficult to find pro bono attorneys doing bankruptcy cases. Almost everybody has a great case for why they need a pro bono attorney. The American Bankruptcy Institute has an online pro bono resource locator that may be helpful, and this is definitely worth exploring, but don't bank on finding free legal counsel.
7. Do it yourself - Pro Se Style
This is also a tempting option and many people will try to file bankruptcy on their own. We would recommend against it. There are a lot of complex legal issues and if your paperwork isn't correct, your filing may be dismissed. The result is the worst of all worlds - your credit score takes a hit but you don't receive any debt relief. The risks are high, and there's a reason lawyers go to school for three years and undergo professional testing.
This may be a better fit for you if you are very detail oriented, do your own taxes, and are willing to spend a lot of time doing it right (make an estimate of how much time you're willing to spend; then multiply by 4). If you decide to go "Pro Se Style", lean on the free resources for Pro Se filers (see here for Massachusetts resources).
If you have questions or want help finding a great bankruptcy lawyer, feel free to call us at 1-855-539-7768.
(Photo: Silver Dollar City)