Too Broke to File Bankruptcy?

Bankruptcy can be an expensive undertaking. In the long run, filing a bankruptcy case will save you thousands of dollars. It's an investment in your future and one that will bring you an almost immediate return. 

In the short term, though, you'll need to pay for an attorney. Learn more about how to file bankruptcy with no money.

Take Advantage of Free Consultations

The first thing to remember is that many, if not most, bankruptcy attorneys provide free consultations. A qualified bankruptcy lawyer can look at your circumstances, help you decide whether bankruptcy is a good fit for you, which type of bankruptcy to file, the timing for the case, and how to pay for it. A good place to look for a qualified lawyer is the National Association of Consumer Bankruptcy Attorneys. 

Once you're sitting down with an attorney, you can discuss ways to pay for the case.

Use Your Tax Refund

When tax refunds arrive in the spring, many bankruptcy lawyers see an uptick in the number of folks seeking information about bankruptcy. Treating the federal government as a savings bank isn't usually the best way to save your money, but in this case, that nest egg could help you reap dividends by allowing you to rid yourself of burdensome debt.

Stop Paying Your Credit Cards

This is sometimes called the “let your creditors pay for your bankruptcy” approach. Once you’ve decided to file bankruptcy, if you hold on to the money you would use to pay your unsecured creditors, in a few months you'll have enough to get on with the bankruptcy case. Unsecured creditors are those who can't seize property if you stop paying on your debt. Your car and home are secured debt, while credit cards and personal loans are usually unsecured.

Ask Family or Friends for Help

It's hard to ask for help. You might feel uncomfortable telling your loved ones why you need the money. Many people find that when they ask for help, they have more resources than they ever thought.

Your attorney will need to know where the money came from because this must be disclosed in your bankruptcy paperwork. If it’s a loan, that person will need to be listed as a creditor. The loan will be discharged in the case, but that doesn’t mean that you can’t pay it back. If it’s a gift, it may have to be listed as income. Your attorney can advise you on this.

Get Your Bill Collectors to Pay

If you’re being harassed by bill collectors, they may be violating the Fair Debt Collection Practices Act or your state’s equivalent. If so, you could be paid $1,000 per instance of harassment, plus actual damages, plus attorney fees and costs.

This will require that you keep accurate records and have an attorney willing to follow through. Not all bankruptcy attorneys handle this type of consumer litigation, but they will refer you to someone who does.

Reduce Expenses

If you haven't already, now's the time to review your budget. Look for items you can cut and ways to reduce expenses. Many people can find an extra few hundred each month without feeling too stretched. Keep in mind that you'll be listing your expenses in your bankruptcy case, at least in general terms. You don’t want to cut too much and be stuck with an unworkable budget long-term. Your attorney can help you figure out the best expenses to trim.

Work With Your Attorney

Many bankruptcy attorneys will let you pay your Chapter 7 fees over time, but they will usually require that your fees be paid in full before the case is filed. For a Chapter 13 case, the attorney fees can be included in your monthly Chapter 13 payment. Some bankruptcy courts will allow you to file a Chapter 13 case through which you pay only your attorney’s fees over some number of months, then convert the case to Chapter 7.

Ways to Get Low-Cost or Free Help

If your income is low, you’re out of work, or you have a disability, you may qualify for no or low-cost legal services. Check with your local Legal Services Corporation or Legal Aid Society. Many local bar associations also make referrals to attorneys willing to provide free or almost free services to low-income individuals. Some law schools have legal clinics staffed by law students under the supervision of professional attorneys.

What Not to Do to Pay for Bankruptcy

The following is a list of last resorts. You shouldn't consider these options unless you’re desperate to file quickly. Talk with a qualified bankruptcy attorney before taking any of these steps because they can cost you more in the long run. 

Taking Out More Credit

It's best not to take out a loan to file for bankruptcy. If you take out a car title loan, you’re jeopardizing your vehicle and will have to pay the title loan company to get the vehicle released. Payday loans have steep interest rates, and a credit card advance may not be discharged. Any unnecessary debt you incur in the 90 days prior to filing bankruptcy—or with the intent of including it in a bankruptcy—may not be discharged, and you could lose your right to a discharge under certain circumstances.

Withdrawing From Your Retirement Accounts or Home Equity

This money will be protected (exempted) when you file a bankruptcy case. If you use it to fund your case, you may incur penalties for early withdrawal or high tax bills. Using home equity loans can put your home in jeopardy if you have trouble making the payments later. The disadvantages outweigh the advantages of this approach unless you owe significant amounts of money that will be discharged.

Filing on Your Own

This is called filing a case “pro se” or “pro per.” If you file without the aid of an attorney, you may not successfully complete your case. This is especially true if there are adversary actions and other complications.

If you have any secured debt, you’ll have to deal with reaffirmation agreements yourself and appear before the bankruptcy judge. If you have any non-exempt property, you’ll have to work with the trustee. You could very well lose more to your creditors in a pro se bankruptcy case than you would have paid an attorney in the first place.

Note, if you are considering bankruptcy, some of the options discussed in this article may not be best suited to your particular situation. It is best to first seek out the advice of a qualified bankruptcy attorney, or an approved credit counseling service at the very least. You can begin by consulting with your state's Consumer Protection Bureau, or visiting the U.S. Department of Justice's website to find a list of approved credit counseling agencies.