How to Afford Bankruptcy, Followup

The Fifth Circuit, covering Texas, Louisiana, and Mississippi, has joined the First Circuit in ruling that there is no per se prohibition against fee-only Chapter 13 filings.

Let’s review. Earlier I posted about making bankruptcy affordable. It costs a lot to file a Chapter 7 case to get rid of credit cards, between the attorney fees and the actual costs. While you are trying to save up that money, you are getting harassed mercilessly. Your pay is threatened and your piece of mind is destroyed. You’re living in a “sweat box”, trying to get through the day without losing your mind.

You could pay the fees and costs in monthly installments through a Chapter 13 filing if the judge will let you. But most bankruptcy judges have ruled that this is a “bad faith” filing, an abuse of the bankruptcy system. In their mind, your attorney should not be paid  if you cannot afford the upfront fees unless you have another reason for needing Chapter 13 protections. Clearly they have not had to suffer that sweat box.

My earlier post noted the unfairness of allowing those debtors who have another reason for a Chapter 13 filing to pay their attorneys over time, 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.

You’re not allowed to do this if you have been able to pay your mortgage, or if you rent, or if you struggled to successfully pay your taxes, or were very careful with your car loan purchases, or if you have a low income. Go figure.

The First Circuit recently ruled in my case that one could file a fee-only Chapter 13 case if there were unspecified “special circumstances”, leaving future bankruptcy court decisions to tell us what these are. There was no per se rule against this strategy.  This was the first appellate-level decision on this, so I posted about it.

Quite recently, the Fifth Circuit joined the First in ruling that there is no per se prohibition against fee-only Chapter 13 filings. That’s two for two appellate decisions on this critical issue for affording bankruptcy relief.

I’m Jed Berliner, a bankruptcy and consumer lawyer practicing in Western and Central Massachusetts, and I’m proud to have contributed to this new legal thinking.