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It’s a classic catch-22: You’re in rough financial shape and need to file for bankruptcy. But between filing fees and the cost of hiring the right bankruptcy attorney, you could end up paying hundreds or even thousands of dollars to do so.
Here’s what bankruptcy costs — and how to pay for it.
How much does it cost to file for bankruptcy?
You’ll face two expenses: the court filing fees, and attorney fees for the bankruptcy lawyer who files your petition, helps you through the means test and represents you in court.
The most common forms of consumer bankruptcy are Chapter 7 bankruptcy, where most all of your debts will be forgiven; and Chapter 13, which reorganizes debts into a repayment plan and can reduce what you owe while letting you retain key assets.
*Attorney fees vary greatly; these are approximate ranges.
Filing fees are the same nationwide, but attorney fees vary based on your location, the complexity of your case and the attorney. In general, they’ll be lower if you live in a rural area or have a simple case. A complex bankruptcy case in Manhattan, however, will likely cost several thousand dollars.
If you’re filing for Chapter 13 bankruptcy, your court will review your attorney fees unless they fall below the so-called “no-look” level that’s recognized as reasonable. This level varies from one district to another, so check with your local court before hiring an attorney.
How to pay for a bankruptcy
Filing Chapter 13 means you have the financial footing to structure a repayment plan for your debts — including attorney fees — after you’ve filed.
But if you’re in enough financial distress that you need to file Chapter 7, you’ll likely need to pay your attorney before he or she files your case. If you can’t afford these costs, you can:
Raise the money
Work out a payment plan before filing
Go pro bono, which means finding an attorney who will take your case free of charge
The first option takes creativity and hard work. The others require you to prove financial need, so gather proof of your income and expenses, as well as your tax statements, before meeting with any legal counsel.
1. Raise the money
A few simple steps can help you free up or find money for your bankruptcy.
First: Minimize your outgoing cash. “If you’re still paying your credit cards, stop paying them,” New Jersey bankruptcy attorney John Hargrave says. “You’re just throwing that money away if you’re going to file. Save that money and put it toward your bankruptcy.”
Unsecured debts, such as credit card bills, are wiped out by a Chapter 7 bankruptcy, so it makes little sense to keep paying them if you’re certain about using this debt relief option.
Next, try to earn some additional income. Selling old electronics or taking on a part-time job are two ways to earn some fast cash.
If you’ve already pawned your flat screen and started a dog walking service but still don’t have enough to cover your bankruptcy, try asking family and friends for help.
2. WORK OUT A PAYMENT PLAN
You might be able to spread out the costs of your attorney and filing fees.
The first step is finding the right attorney. In this case, that means one who has expertise, is a good communicator, charges a fair price — and is willing to receive payment over time. Ask any lawyer you’re considering about the possibility during your initial meeting.
Payment plans vary; some lawyers allow you to spread payments over six months, others three months. Most will want payments completed before filing your case: Since Chapter 7 bankruptcy wipes out most of your debts, you wouldn’t be legally obligated to pay your attorney any outstanding fees after filing. That’s just not a sustainable business plan.
But you can still get some benefit, even while you’re making the payments, Hargrave says. Once you officially hire a lawyer, he or she can take calls from creditors on your behalf. When you discuss setting up a payment plan, ask how much of the fee you must pay before the lawyer will begin taking calls.
“When people hire a bankruptcy lawyer, they know the fear of going to the mailbox, the fear of what phone call is going to come next — that evaporates when you hire an attorney,” Hargrave says. “That’s a huge benefit for people.”
Later, your attorney can work with the court to set up a payment plan for your bankruptcy filing fee. The $335 fee can be split into as many as four payments.
3. GO PRO BONO
You might qualify for free legal services or waived fees if your income is less than 150% of the poverty level for your family size and you’re unable to afford a payment plan.
There are a few ways to find a pro bono attorney. First, ask your local bankruptcy court for information about free legal clinics and local free legal aid resources. If you meet their guidelines, these organizations might be able to offer some help or connect you with pro bono bankruptcy attorneys. But be prepared: Legal aid organizations are often underfunded and overworked. Still, it's wise to get on the waiting list with one while you continue to pursue other options.
The National Association of Consumer Bankruptcy Attorneys has a search tool to help you find attorneys in your area.
You can also reach out to your state’s bar association. Some firms require attorneys to make pro bono work 10% to 15% of their caseloads. But don’t pick an attorney simply because he or she is free.
Lastly, you can hire a petition preparer instead of an attorney if you’re in a hurry to file. He or she will help you fill out your paperwork for an hourly fee that can be as low as $70. A petition preparer can’t give you the legal advice that an attorney can provide, but this is an option if you just want to file your bankruptcy in order to trigger the “automatic stay” that halts collection efforts.
What about DIY?
If you’re thinking of filing on your own, without any legal assistance, Hargrave has one piece of advice: Don’t.
John Hargrave, Bankruptcy attorney
The law has a lot of jargon and technical stuff that you, without assistance of a lawyer, could screw up.”
“There’s a jeopardy in doing a bankruptcy by yourself,” he says. “Even if you’re a well-educated, articulate person, the law still has a lot of jargon and technical stuff that you, without assistance of a lawyer, could screw up.”
Only about 1.4% of Chapter 13 bankruptcy cases filed in 2012 without an attorney received a discharge, meaning the cases were resolved and debts forgiven, federal bankruptcy data shows.
Making a mistake on your paperwork can lead the court to throw out your case, wasting the effort and money you’ve put into it.