Bankruptcy can be expensive. Are you wondering how you can actually afford to file bankruptcy? It’s a conundrum we bankruptcy lawyers hear all the time. “How can I pay for a bankruptcy attorney if I’m so broke I need to file bankruptcy?”

In Part 1 of this article, I talked about how much it costs to file bankruptcy. In this article, I discuss ways to either come up with the money or find help so that you don’t have to.

The first thing to remember is that many, if not most, bankruptcy attorneys provide a free consultation. A qualified bankruptcy lawyer can take a look at your personal circumstances, help you decide whether bankruptcy is a good fit for you, which type of bankruptcy to file, the timing for the case, and how to pay for it. A good place to look for a qualified lawyer is the National Association of Consumer Bankruptcy Attorneys. 

Here are some ideas you can discuss with your attorney. 

Use your tax refund. When tax refunds arrive in the spring, many bankruptcy lawyers see an uptick in the number of folks seeking information about bankruptcy. Treating the federal government as a savings bank is not usually the best way to save your money, but in this case that nest egg could help you reap dividends by allowing you to rid yourself of burdensome debt.

Stop paying your credit cards. I’ve heard this called the “let your creditors pay for your bankruptcy” approach. Chances are, that credit card debt will be discharged in the bankruptcy case anyway.

Once you’ve decided to file bankruptcy, paying your unsecured creditors (those without collateral on the debt) is like throwing good money after bad. Don’t feel too bad for the creditor. Most of what you’d be paying back is interest, anyway.

Get the money from family or friends. I understand that it may be hard for you to ask for help. You might feel uncomfortable telling your loved ones why you need the money. Nevertheless, many of my clients found that when they asked for help, they had more resources than they ever thought in people who just want the best for them. Your attorney will need to know where the money came from because this has to be disclosed in your bankruptcy paperwork. If it’s a loan, that person will need to be listed as a creditor. The loan will be discharged in the case, but that doesn’t mean that you can’t pay it back. If it’s a gift, it may have to be listed as income. Your attorney can advise you on this.

Get your bill collectors to pay. If you’re being harassed by bill collectors, there’s a pretty good chance those collectors are overstepping their bounds and violating the Federal Debt Collection Practices Act or your state’s equivalent. If so, you can be paid $1,000 per instance of harassment, plus actual damages, plus attorney fees and costs. This will require that you keep accurate records, record your phone conversations and have an attorney willing to follow through. Not all bankruptcy attorneys handle this type of consumer litigation, but they will refer you to someone who does. We’ve had collection companies settle for thousands of dollars. Click here for a list of Fair Debt Collection violations.

Reduce expenses. Easier said than done, right? But there’s a lot of truth there. Not spending that $4 for a cup of designer coffee can add up fast. How about cutting HBO and Showtime? Or taking your lunch to work instead of spending $10 or $15? Many people can find an extra few hundred each month without feeling too stretched. Keep in mind that you will be listing your expenses in your bankruptcy case, at least in general terms. You don’t want to cut to the bare bones and be stuck with an unworkable budget long term. Your attorney can help you figure out the best expenses to trim. Another place to check out with great tips and articles is our About.com site on frugal living.  

Make more money. Work overtime, get a second job, have a garage sale, start a small business. All of these may be options. But, keep in mind that you also have to report all of your income for the six months before you file a case, and that may affect your means test. Again, your bankruptcy attorney can help you determine if this will work for you.

Get low-cost help. If your income is low, you’re out of work or have a disability, you may qualify for no or low-cost legal services. Check with your local Legal Services Corporation or Legal Aid Society. Many local bar associations also make referrals to attorneys willing to provide free or almost free services to low income individuals. Even some law schools have legal clinics staffed by law students under the supervision of professional attorneys.

Work with your attorney. Many bankruptcy attorneys will let you pay out your Chapter 7 fees over time, but they will usually require that your fees be paid in full before the case is filed. For a Chapter 13 case, however, the attorney fees can be included in your monthly Chapter 13 payment. Some bankruptcy courts will allow you to file a Chapter 13 case through which you pay only your attorney’s fees over some number of months, then convert the case to Chapter 7.

The following is a list of last resorts. You should not consider these options unless you’re desperate to file quickly. Please talk with a qualified bankruptcy attorney before taking any of these steps because they can cost you more in the long run. 

Taking out more credit to pay attorney and filing fees. If you’re thinking that you can take out a payday loan, car title loan or an advance on your credit card and discharge those amounts in your bankruptcy, it might not work. If you take out a car title loan, you’re jeopardizing your vehicle and will have to pay the title loan company to get the vehicle released anyway. Any debt you incur in the 90 days prior to filing bankruptcy – or with the intent including it in a bankruptcy - may not be discharged, and in fact, you could lose your right to a discharge under certain circumstances. Read here to learn more about why this isn't a good idea.

Withdrawing from your 401(k), your IRA or home equity. This money is likely protected in bankruptcy. If you use it fund your case, you may incur penalties for early withdrawal or high tax bills. Using home equity loans can put your home in jeopardy if you make the payments later. Only if you owe huge amounts of money that will be discharged in a bankruptcy case will this ever outweigh the disadvantages. Check out these articles on the property that's protected when you file bankruptcy.

Skipping car or house payments. This can be attractive because it might only take one house payment or a couple of car payments to cover your fees for the bankruptcy. This is not a great idea, though. Once you’re behind on your payments, it can be very hard to find the money to bring yourself current. You may find yourself perpetually incurring late fees. On the other hand, eliminating other payments like credit card minimums might provide the breathing space to catch up the secured debt. I’ve just seen too many people take this route thinking, “I can catch up, no problem,” then find them facing repossession or foreclosure just months down the road. Besides, keeping your car payment and house payment up-to-date is a great way to rehabilitate your credit report.

Filing bankruptcy on your own. This is called filing a case “pro se” or “pro per”. If you file without the aid of an attorney, your chance of successfully completing a Chapter 13 case is less than 1%. In a Chapter 7 case, your chance of successfully completing it is less than 50% without an attorney. But this depends somewhat on the area of the country you’re in and how cooperative your court is. If you have any secured debt, you’ll have to deal with reaffirmation agreements yourself, and appear before the bankruptcy judge. If you have any non-exempt property, you’ll have to work with the trustee. You could very well lose more to your creditors in a pro se bankruptcy case than you would have paid an attorney in first place.

See also the article on Bankruptcy Petition Preparers.