If you’re deep in debt and considering bankruptcy, you’re not alone. Over 522,808 Americans filed for bankruptcy during the 12-month period ending December 31, 2020. Bankruptcy has a certain stigma, but many bankruptcies do not involve personal irresponsibility: the most common reasons for bankruptcy are income loss and medical expenses.
No matter how secure you are now, with enough bad luck, you could find yourself in a position where bankruptcy is the only rational decision. If you’re in that position, you’ll face another problem. Filing for bankruptcy is expensive, but bankrupt people generally don’t have money. How can you file Chapter 7 – the most common form of bankruptcy – with no money?
What Does Chapter 7 Bankruptcy Cost?
There are several different types of bankruptcy. Almost all personal bankruptcies fall into two categories: Chapter 7 and Chapter 13. Chapter 7 bankruptcy is the most common type.
Assuming that you have settled on filing for Chapter 7, let’s look at the costs you’ll have to pay:
- Filing Fees
- Credit and Debt Counseling Fees
- Legal Fees
👉 Filing fees are fixed by the bankruptcy court system and are the same everywhere in the country. Counseling and legal fees may vary.
1. Filing Fees
These are the fees you’ll have to pay to file for Chapter 7.
- $245 case filing fee
- $75 miscellaneous administrative fee
- $15 trustee surcharge
That’s a total of $335, assuming that you don’t rack up any additional charges.
2. Counseling Fees
You will have to take two counseling courses before the court discharges your bankruptcy. All personal bankruptcies require these courses.
- Credit counseling course
- Debtor education course
You have to take the credit counseling course before you file for Chapter 7. This course will review the risks involved in filing for Chapter 7 bankruptcy and help you determine whether filing for bankruptcy is the right move for you. The course costs around $50.
You take the debtor education course after filing. This course gives you the financial management tools to help you get back on your feet once the dust settles. The debtor education course will also cost you around $50.
3. Legal Fees
Legal fees vary with several factors, including your case’s complexity and the going market rate in your area. A case in New York City will cost more than one in Fargo.
If you clearly pass the means test that qualifies you for Chapter 7, you have no non-exempt assets, and your creditors cooperate, your costs will run to the lower end of this range. If you have to prove that you qualify, have non-exempt assets, and your creditors contest your bankruptcy, your legal costs will be substantially higher.
On average, your attorney’s fees will probably be somewhere between $1,000 and $3,500.
How to File Chapter 7 With No Money
Chapter 7 bankruptcy can easily cost several thousand dollars. That’s a lot of money for a person who needs to file bankruptcy. Let’s look at some ways to trim that total.
1. The Filing Fees
If you have to file Chapter 7 with no money there are two ways to manage filing fees. You can either ask to pay the filing fees in installments or ask that the fees be waived entirely.
You can ask the court for permission to pay the filing fee in installments. You’ll have to fill out file Form 103A “Application for Individuals to Pay the Filing Fees in Installments”, propose a payment schedule and suggest the number of installments.
Your installment plan will have to meet two qualifications.
- You can’t propose more than four installments.
- You must pay your fees in full by 120 days from your filing date.
If your installment plan meets those criteria the chances of approval are good.
You can also ask the court to waive the fee altogether. There are a few conditions for you to qualify for a fee waiver:
- You have to show that you can’t afford to pay even in installments.
- Your income must be less than 150% of the poverty line.
You’ll need to fill out Form 103B “Application to Have the Chapter 7 Filing Fee Waived” to get your fees waived.
You might be asked to appear in court, where the judge will ask you questions about your financial situation.
2. Counseling Fees
If your income is lower than 150% of the poverty line, you can have the fees on both courses waived.
The provider of your courses may charge you a reduced fee, especially if they can show that you can afford it based on the financial information you have provided them.
3. Legal Fees
This is the largest cost of bankruptcy, and it’s where things will get tricky if you need to file Chapter 7 with no money.
If you don’t pay your lawyers their fees, you will owe them a debt. This is a form of unsecured debt, the type of debt Chapter 7 bankruptcy is most likely to wipe out. In other words, once your bankruptcy is discharged, you won’t have to pay any money owed to your attorneys.
Bankruptcy lawyers know this, of course, and that’s why you will have to pay your attorney in full before your case is filed.
What Can I Do if I Can’t Afford a Bankruptcy Attorney?
If you cannot afford the legal fee for a bankruptcy attorney, you have some options. You’ll need to weigh the pros and cons of each and decide which one is best for your particular situation.
- Decide that you don’t want a lawyer at all.
- Use Upsolve
- Look for discounted or pro-bono legal aid.
- Try a “No Money Down” option.
- Find the money to pay your attorney.
Let’s talk about each option separately.
Going it Alone
There are pros and cons to handling your bankruptcy case yourself.
The biggest advantage is that you’ll save all the legal fees you would have paid an attorney to handle your case.
The cons are considerable as well.
A good bankruptcy attorney can save you money. They are familiar with consumer bankruptcy laws and have a clear idea of how to handle the various administrative aspects of your case. An attorney can make sure that your case moves quickly through the court.
If you choose to handle things yourself and make a mistake, you can end up waiting for the courts to approve your petition. If you file without an attorney you could lose assets that are worth more than the legal fees would cost. You could even see your case dismissed.
If your case is very simple – for example, if you have no assets and a small number of creditors who are not likely to contest your bankruptcy – you might be able to get away with filing on your own. Even then it would be risky. In any other case, the only real option is to get a professional on board.
⚠️ The cost of making a mistake can be way more than what you’d save on attorney’s fees.
Upsolve is a free app designed to assist low to middle-income people in filing for bankruptcy. The app will help you determine whether you’re a good fit for its service. It will then ask you questions in plain English and use the answers to fill out your bankruptcy forms.
Upsolve has received high marks from bankruptcy judges and attorneys and appears to do an excellent job. On the downside, it only handles relatively simple Chapter 7 bankruptcy cases. If your case is complex or you need to file a Chapter 13 bankruptcy it will not help you.
Check our Upsolve review for more on this option.
Discounted or Pro Bono Lawyers
There are several free resources available to people who need to file Chapter 7 with no money. If your income is beneath a certain level, you’re out of a job, or you have a disability, you will probably qualify for free legal aid.
You might find a free clinic at your bankruptcy court, which can help you file for bankruptcy on your own. Get in touch with your bankruptcy court to see what legal services are available.
There may be other free legal services available in your area. You might find a legal aid society or a pro-bono attorney who will be willing to take your case for free. Some law schools provide communities with legal clinics.
💡 You can contact your state bar association, your local legal aid society, or local bankruptcy lawyers to ask about pro bono legal services. You can also look at the National Association of Consumer Bankruptcy Attorneys and the Legal Services Corporation.
The “No Money Down” Option
Normally you have to pay all your bankruptcy attorney’s fees upfront. A “No Money Down” arrangement defers the payment and allows you to pay your attorney later down the line.
What happens is that your lawyer breaks your case into two parts: The first part is pre-filing, and the second part is post-filing. Your attorney will agree to do the pre-filing part for free. They will file a case on your behalf, one that contains little information yet is enough to get you an “automatic stay.” With a stay, your creditors won’t be able to collect your debts.
After that, you will have to choose one of two things: rehiring the attorney or pursuing the case on your own.
Should you decide to rehire the attorney, you will set up a payment plan together. The attorney will receive automatic payments from your bank account, and they will file the remaining paperwork needed to continue on with your case.
⚠️ Even though this solution may seem convenient, it comes at a cost: A “No Money Down” bankruptcy may cost you two to three times what you would have paid a standard attorney upfront. The attorney is taking a considerable risk, and the fee will go up to compensate for that risk.
Attorneys who don’t believe you’ll be able to pay the fee they may not be willing to offer a “no money down” arrangement.
Find the Money
A Chapter 7 bankruptcy will almost always cost something. The methods above will help you cut the cost, but you will be left with something to pay. The last step to take if you need to file for Chapter 7 with no money is finding enough to pay those costs.
👉 Try one of these ideas:
💡 Stop Paying Your Creditors
Most of your unsecured debts will get wiped out once your bankruptcy is discharged. If you have no option other than bankruptcy, consider saving your money for bankruptcy costs rather than paying your creditors.
Once you file for bankruptcy, the court will issue an automatic stay order, which will keep your creditors off of your back. Should an annoying creditor still reach you, you can just tell them to get in touch with your lawyer.
This is a risky strategy, and you shouldn’t do it unless you are certain that you qualify for Chapter 7.
💡 Borrow the Money
If things seem dire, you can always reach out to friends and family and ask them to borrow your attorney’s fees. Even your employer might be understanding and lend you what you need.
💡 Use Free Consultations
Most attorneys offer free initial consultations, and you should take advantage of those. You can figure out whether declaring bankruptcy is the right move for you and which chapter you should file for during those consultations. The attorneys might even take a close look at your financials and advise you on how you can best pay for the case.
💡 Let Uncle Sam Help
It would be best if you didn’t get in the habit of treating the government as your personal savings bank, but desperate times call for desperate measures. A tax refund can come in handy if you need to pay an attorney.
💡 Cut Down on Expenses
The last thing you can do is go over your budget one more time and see what is expendable. You want to cut costs as much as possible and save money wherever you can. If you can save a few hundred dollars every month, it will be easier to hire an attorney.
What Not to Do
The suggestions above may help you pay your lawyer if you have to file Chapter 7 with no money. There are also a few things you want to avoid doing.
👉 Stay away from:
☝️ Taking On More Debt
You might be thinking: if my debt is going to be discharged anyway, why not pay my lawyer with my credit card?
You don’t want to do that. For one thing, if you incur any debt 90 days before filing, that debt may not be discharged. Any debt you incur with the explicit intention of including it in the bankruptcy will also not be discharged.
☝️ Liquidating Your Exempt Assets
You will have some assets that are exempt from the bankruptcy proceedings. These assets may include your home equity or your retirement account.
If you decide to liquidate some of these assets to pay for your bankruptcy case, you may end up paying early withdrawal penalties or high tax bills. Relying on home equity loans could lead to losing your home if you fail to make the payments later.
So, How Feasible Is It To File Chapter 7 With No Money?
As it turns out, it is quite feasible.
Both the filing fees and the counseling fees can be waived under the right circumstances. The only real issue will be the legal fees, but there are many options here, and with some effort and persistence, you should be able to find an affordable option.
Once you’ve found a way to file for Chapter 7 with no money, all you have to worry about is what to do once you get your fresh start!
📘 Filing for bankruptcy is not the end of the line: Life After Bankruptcy: How to Rebuild Your Credit and Your Finances