How to Pay for Bankruptcy
By Däna Wilkinson, Attorney at Law on Jul 1, 2008 in General Bankruptcy Information
It comes up at almost every initial meeting with a prospective client–if I’m bankrupt, how do I pay for bankruptcy?
Many folks who worry about paying for bankruptcy, and think they’ll never be able to afford it miss the obvious–if you are going to resolve your debts by filing bankruptcy, you may be able to stop making payments on some (or even all) of your current debt. That will free income which can then be used to pay bankruptcy fees. Every situation is different, so you need the advice of an experienced lawyer to determine which creditors you can stop paying, and when. If fact, I believe most of my clients pay for bankruptcy in just such a fashion.
I am generally not a fan of taking money out of retirement accounts (whether IRAs or 401ks) without a really good reason, but it may be appropriate to do so to file bankruptcy, especially if you are facing a foreclosure action on your home. Most employers have hardship provisions which allow you to borrow against a 401k plan in an emergency, and a foreclosure qualifies. If you don’t have enough money in your 401k plan to cure the delinquent mortgage payments, you may have enough to get a bankruptcy filed and stop a foreclosure.
Although I certainly don’t think you should borrow from a credit card or any other institutional lender to pay for bankruptcy (there is a reason I don’t take credit cards), it may be appropriate to take a small loan from family members to pay for bankruptcy, as long as you are honest about why you need the money. Only you can determine whether your relationship is up to the strain, but if you have sympathetic friends or family members, you are truly blessed.
If it’s that time of year, one of the easiest ways to pay for bankruptcy is with your tax refund. For most people, it’s a good time to take stock and deal with financial problems, too. This is especially true if you are accustomed to using your tax refund to catch up on all the bills that have gotten behind over the past year.
If you are in that kind of pattern, you probably need to consider bankruptcy in any case. Talk to a bankruptcy lawyer about your situation. You may find that you can use your tax refund and the advice of an experienced bankruptcy lawyer to build a solid financial foundation.
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