How to Pay for Bankruptcy When You’re Flat Broke

By Cathy Moran, Esq. (Redwood City, CA)

One of the cosmic ironies of our legal system is that it costs money to file bankruptcy. Bankruptcy gets you out of debt only if you have the money to file.

The costs of bankruptcy include the filing fee collected by the court; the required credit counseling; and, if you’re smart, an experienced lawyer to make sure it’s done right.

I have not recommended people represent themselves in bankruptcy since Congress “reformed” bankruptcy 15 years ago. The express intent of that law was to discourage consumers from getting relief from their debts. With “reform”, bankruptcy law acquired pitfalls, traps, and requirements that invited mistakes.

But a malicious Congress left untouched one of the shining features of bankruptcy, the ability to pay your bankruptcy attorney after you file Chapter 13.

Chapter 13 pays attorneys fees

Chapter 13 is a repayment plan for individuals. You make a monthly payment to a Chapter 13 trustee for the life of the plan. Those plan payments can pay the lawyer who helped you file the plan and get a bankruptcy discharge.

By contrast, to file Chapter 7, the most common alternative to Chapter 13, your attorneys fees usually need to be paid in full, before you file. Paying for Chapter 7 then becomes a challenge unto itself.

In Chapter 13, the debtor’s attorney has an administrative claim in the case for whatever part of the total fee wasn’t paid before the case was filed. Administrative claims have a priority for payment under bankruptcy law.

Choosing Chapter 13

The ability to effectively finance the attorney’s fees to file bankruptcy can be a godsend when you face the need for an immediate bankruptcy filing. That need can be as concrete as the need to save your house or your paycheck. Or it can be as ephemeral as the need to stop the stress of being in debt.

Chapter 13 comes with some features that aren’t as appealing as Chapter 7. The biggest downside is that the discharge doesn’t come until you complete the plan payments, which can run from 36 months to 60 months.

The duration of the plan risks that intervening events, like job loss or health issues may compromise your ability to make the plan payment.

But usually, if your situation was so bleak that you couldn’t pay for a Chapter 7, the Chapter 13 plan payment may be as little as $50 to $100 a month.

And, if it develops that you can’t make the Chapter 13 payments, you have the absolute right to convert your case at any point to Chapter 7.

All in all, that’s why I love Chapter 13.


moran_cathyCathy Moran has headed her own small firm Moran Law Group in Mountain View, California, for nearly 30 years. Family law and tax issues as they play out in bankruptcy are areas of particular interest to Cathy.

No Author Biography has been linked to this Article.

Related Articles

March 27, 2022
I’ve been having nightmares about the 9th Circuit’s decision in Siegel for 20 years. Broad strokes, Siegel (143 F.3d 525 (9th Cir. 1998) holds that a filed claim in a no asset bankruptcy case to which no one objects is entitled to preclusive effect in subsequent litigation by . . . It looks like you are not signed in or...
March 10, 2019
By Lawrence R. Ahern III, Brown & Ahern (Nashville, TN) PART III: The Lower Courts Struggle with Arbitration Guidelines Introduction Click here for Part I Click here for Part II
October 13, 2019
By Lawrence R. Ahern, III, Brown & Ahern (Nashville, TN) Click here for Part I, Introduction to the 2019 Legislation Click here for Part II, Five Things a Trustee Should Know About SBRA Part III The Small Business Reorganization Act of 2019 (SBRA)1 is of interest to attorneys whose clients in troubled . . . It looks like you are...
October 3, 2021
By Michael J. McCormick, Esq., McCalla Raymer Leibert Pierce, LLC (Roswell, GA) Escrow 101 - Part 1 Escrow 101 - Part 2 Escrow 101 - Part 3 Escrow 102 - Part 1
M Joseph Photo 2-1-22
June 12, 2022
It is always troublesome when an individual bankruptcy petition is filed by power of attorney. It may be less of a concern in a chapter 7 case when the debtor is in the military, incarcerated, or temporarily disabled. More worrisome is the incompetent or advanced aged debtor who has been placed in a chapter 13 by someone holding a power...
M Joseph Photo 2-1-22
August 28, 2022
An attorney meets with a potential client about a recent auto accident personal injury claim. The client suffered severe injuries and may be entitled to a large award. The client fails to mention that he is a debtor in an active bankruptcy. The client also has failed to advise his bankruptcy attorney about the personal injury claim. The debtor/client does...
September 3, 2023
These virtual 341 meetings via Zoom will be implemented on a rolling basis through early 2024.
Copy of Hildebrand-2016
A month-to-month residential lease can be assumed and defaults cured in a Chapter 13 plan. (Rucker) In re Mattoon, 2022 WL 2080184 (Bankr. E.D. Tenn. June 9, 2022) Case Summary Sarah Mattoon executed a lease with Open Doors in September of 2019. Several of Ms. Mattoon’s family members lived with her in the rented apartment including her “companion” and her...
September 10, 2023
Andrew B. Finberg has been appointed as a Chapter 13 Standing Trustee for the District of New Jersey.  Finberg is picking up the mantle left by happily retiring Isabel Balboa.
March 17, 2019
By Wm. Houston Brown, United States Bankruptcy Judge (Retired) Confirmation - Trustee’s “double-dipping” objection to above-median confirmation denied. The trustee objected to confirmation based on above-median debtor deducting the IRS Local Standard housing deduction when the actual mortgage expense was on a marital residence owned by the debtor’s nonfiling spouse, while also claiming the marital adjustment for the spouse’s income...