Paying for Bankruptcy: “Running on Empty”

07 Aug Paying for Bankruptcy: “Running on Empty”

paying your bankruptcy lawyerIn my Charleston, South Carolina bankruptcy practice, I’m frequently asked, “how much is it?” I recently wrote about attorneys fees in bankruptcy and how the amount of the fee should not be your primary focus in hiring an attorney. After all, you want quality representation and you want the debt as gone as it can possibly be. In short, you should think value, not price.

But that leads us to another issue. How do you pay your bankruptcy lawyer? After all, you’re not flush with cash if you’re filing bankruptcy. Here are some ideas:

(1) Stop paying for debts you’ll discharge in your bankruptcy. For example, if you owe credit card debt, there’s normally no sense in continuing to make payments on your credit cards. This holds true for secured debts as well if you are surrendering the property securing the loan. For example, if you plan on surrendering your home in bankruptcy, don’t waste your money making mortgage payments. Save your money to pay for your bankruptcy.

(2) Normally, I’m not a big fan of withdrawing money from IRAs and 401(k)s. That money can’t be reached by your creditors, so it’s best to just leave it alone. Also, if you withdraw funds, you’ll be hit with penalties and interest. This is why my colleague, Myrtle Beach bankruptcy lawyer Allen Jeffcoat, recently stressed the importance of not waiting to file bankruptcy while paying your debts with retirement funds. You’re just throwing your retirement funds away.

But it may be appropriate to use a relatively small amount of those funds to get your case filed. Filing bankruptcy is extremely cost-effective. You’ll typically pay two or three thousand dollars–more for more complicated cases–to file your case. But some clients end up discharging hundreds of thousands of dollars of debt. Because of the huge value to your long-term financial plan, it’s one of the few instances in which I would, in the right case, advise clients to pay me with retirement funds. However, always discuss this with your bankruptcy lawyer prior to withdrawing any funds from your retirement accounts.

(3) You could borrow the funds from relatives. Maybe your parents have already been helping you with your finances. They likely know continuing this is not realistic for you or for them. However, they probably also understand that if you can file bankruptcy, you can end the viscous cycle. And you can always pay them back after your case is over.

(4) You could consider filing a Chapter 13 bankruptcy. Chapter 13 is a payment plan bankruptcy in which you repay your creditors some–or even all–of what you owe them. In Chapter 13, your lawyer will allow you to pay some of your fees up front and the balance of the fees in the Chapter 13 plan. While our new bankruptcy law negatively affected the Chapter 13 process–mainly by forcing above-median income debtors to pay for five years instead of three–it’s still an option you may want to consider.

So while you may be running on empty, you can still be creative and get your case filed. If your lawyer says you should file, bankruptcy will be very cost-effective for you and will help you immensely with long-term financial planning. So it pays to get your case filed as early as possible.

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Russell A. DeMott is a Charleston, South Carolina bankruptcy lawyer who represents consumer debtors in Chapter 7 and Chapter 13 bankruptcy. He is the author of the Charleston Bankruptcy Blog. He is also a member of the South Carolina Bankruptcy Blog. He files bankruptcy cases for clients in the Charleston, South Carolina division, which runs from Myrtle Beach to Beaufort. The DeMott Law Firm also represents clients in foreclosure defense and mortgage modification. You can also connect with Russ on Google Plus Russell DeMott. Russ can be contacted directly at (843) 695-0830 or by email at russ@demottlawfirm.com.
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