How do I pay for a bankruptcy?

A lot of my bankruptcy clients do not have much money.  Generally, that is a given, and it is the reason they are needing to file for bankruptcy.  However, many of them do not know how they can afford a bankruptcy, and so instead of seeing a lawyer and trying to get some relief, they continue to live in a perpetual state of fear from their bill collectors.  If you know that you are going to be filing for bankruptcy, it is advisable to stop paying credit cards and other similar bills.  It is important to stay current on your house, car, insurance, and utility bills, but the other ones you can let go.  Why?  Isn’t this counter-intuitive?  The answer has a couple of dimensions:  (1)  you need the money to live on (i.e.  eat, keep a roof over your head, get to work); (2) the payments to creditors are usually so small that they only pay a small percentage of the interest; (3) a trustee can pull back payments made to creditors within 90 days of filing for bankruptcy as preferential payments, so the creditor could end up without a payment anyway; (4) you will need the money to pay the bankruptcy attorney.  A wise Chapter 7 bankruptcy attorney knows to get paid in full before filing a bankruptcy case.  This is because otherwise the debt will be discharged in the bankruptcy, and the attorney will not be able to collect on it afterwards.  In addition, the automatic stay will bar any attempts during the bankruptcy of the attorney to collect on the debt.  Always be wary of an attorney who says he or she will let a client pay later — they may not know the law as well as they should.

On a related note, it is very important for a debtor who wants to keep her house and car to be current on those payments.  A secured creditor has no reason to enter into a reaffirmation agreement with the debtor to continue the debt through the bankruptcy for collateral such as a house or car unless the debtor has proven to be trustworthy and reliable with payments.  It is also important to stay current on the insurance for a house and car because that is often a requirement by a creditor when extending credit.  If a debtor lets the insurance lapse, a creditor may have the right to foreclose or repossess on the basis of breach of contract.  Finally, it is important to keep your utilities current because otherwise they will be shut off, and they will only be turned on again when you are current.