The first question many people ask in their free bankruptcy consultation is: "How can I pay for my bankruptcy?"

This is really two questions:

1. What rules apply to paying bankruptcy fees? and
2. Where can I get the funds to pay for my bankruptcy?

Paying Bankruptcy Fees: Applicable Rules

There are a few rules that affect payment of bankruptcy fees.

No credit card payments from person filing bankruptcy: A person filing bankruptcy is not permitted to pay bankruptcy fees with their own credit card. Presumably any credit card charges would be discharged in the bankruptcy.

No loans: Don't borrow money to pay bankruptcy fees. A person filing bankruptcy should not incur any new debt just before filing bankruptcy.

Gifts are OK: But, it's ok of someone gives you the money to file bankruptcy.

Chapter 7: attorneys must be paid before filing the case In many jurisdictions, attorneys must be paid in full before filing a Chapter 7 bankruptcy. This is because your attorney is treated like any other unsecured creditor after your case is filed. The attorney is not permitted (in most jurisdictions) to accept payment for pre-filing work after the case is filed. You must also stop paying your other unsecured creditors after your bankruptcy is filed.

Chapter 13: Part of attorney's fees can be paid through bankruptcy repayment plan In chapter 13, bankruptcy filers often pay part of their attorney's fees through their monthly Chapter 13 plan payments. But, the bankruptcy filer must have enough disposable income to pay attorney's fees through the plan while also satisfying all the other payment plan requirements.

Where Can I Get the Funds to Pay for my Bankruptcy?

The bigger question is really a practical one. Where can a bankruptcy filer get the funds to pay for their bankruptcy?

Over the years, our clients have paid for their bankruptcies from various sources of funds:

Stopping credit card payments: People quickly save up enough money to file bankruptcy when they stop making huge monthly credit card payments.

Borrowing from retirement accounts: Although it's not anyone's first choice, a "loan" from a retirement account isn't treated as incurring new debt because it is money you will repay to yourself, usually through payroll deductions. You cannot discharge the retirement "loan" in your bankruptcy.

Use your tax refund: January through May is usually "busy season" in the bankruptcy courts. That is because many people use their tax refunds to pay bankruptcy fees. Using tax refunds to pay bankruptcy fees can solve another problem as well. Tax refunds are considered assets in your bankruptcy. That's not a problem if you have room in your exemptions to exempt the tax refund. But, if your exemptions are already maxed out, you might want to wait until you receive the tax refund, then use it to pay your bankruptcy fees.

Schedule a Free Consultation

To schedule a free consultation with bankruptcy attorney Karen Ware, call 805-284-0760 (Oxnard office) or 818-668-9019 (Thousand Oaks office) or use our online scheduling tool.