How to Afford Bankruptcy

Bankruptcy can be affordable. 

It requires a lot of money to file for bankruptcy protections. It costs lots more than before the 2005 revisions, which doubled the expenses and work for no additional benefit. Here’s how to make it affordable.

Chapter 7 cases are over in three months. One has to save up the fees and costs before the filing. Legal fees not paid before the filing get discharged, just like credit cards. But it can be hard to save up the money – that’s why you’re thinking of bankruptcy in the first place. Duh.

One can pay fees over the three to five years of a Chapter 13 filing. That avoids having to save it all up beforehand.

Many bankruptcy judges won’t let you file a Chapter 13 case if your only reason is to pay your attorney. They require something more, what they believe is the “real” purpose of Chapter 13. Like needing to catch up on a mortgage, car loan, or recent income taxes, or to reduce a car loan balance, or because you have too high an income to file a Chapter 7 case.

Let’s pause to think about this. If you rent, you can’t pay your attorney fees through a Chapter 13 case. If you are lucky enough to stay current on your mortgage, or able to pay all your income taxes, or frugally bought a car at a good price, you can’t pay your attorney fees through a Chapter 13 case.

If you have a low income, you can’t pay your attorney fees through a Chapter 13 case but you can if you have a high income.

This is America?

In Kansas and North Carolina, fee-only Chapter 13 cases are accepted without question. Most of the other jurisdictions which have ruled on this question say no. A few say, “no unless special circumstances.”

That’s what the First Circuit Court of Appeals just ruled. This Circuit covers New England (without Connecticut) and Puerto Rico. If your bankruptcy judge finds “special circumstances”, then you can file a fee-only Chapter 13 case.

I cannot promise what your judge will say about “special circumstances” and approving a fee-only Chapter 13 filing. I believe it will depend on the degree of creditor harassment. A wage garnishment should work. A high volume of creditor harassment, such as calls to your employment, might fit the bill.

Jed Berliner is a Massachusetts bankruptcy and foreclosure defense attorney.

Picture courtesy of USA