By Ryan C. Wood

It is inevitable that my clients ask me the question of whether I can file their bankruptcy case for them with $0 money down or at least a partial payment with the rest to be paid after their case is filed. I understand the need some of my clients have when they are asking this question. Obviously if they have to file for bankruptcy they may not have the funds to hire an attorney but they may still need to urgently file, either because they have a looming wage garnishment or their car was repossessed and they need to file their bankruptcy case before their car is auctioned off. They are stuck in a catch 22: if they do not file for bankruptcy, their wages get garnished or their car is auctioned off and they will have even less money. It is a never-ending vicious cycle. Filing for bankruptcy immediately and then paying the bankruptcy attorney back after the case is filed may seem to be a solution. Unfortunately that solution is not a viable option in Chapter 7 bankruptcy cases for several reasons:

Violation of Automatic Stay

The automatic stay prevents all collection activity against you after your bankruptcy case is filed. That means no creditor can call you, harass you, go after you for any debt, file or continue a lawsuit against you, continue any wage garnishments, repossess your car, or any other activity that is considered trying to collect a debt from you. Whomever you owe money to is considered a creditor. That includes your bankruptcy lawyer if you still owe him or her money after your bankruptcy case is filed. Your legal obligation to repay the dischargeable unsecured debt in your bankruptcy case is gone. You are therefore not legally obligated to pay your bankruptcy attorney and they will be essentially working for free in your case. If they try to collect from you they are violation the automatic stay. This is not to say that they cannot charge you for any post-petition work that comes up in your case that was not bargained for in your initial contract (such as representing you in an adversary proceeding in your bankruptcy case). The attorneys just cannot charge you for the work they did prior to the filing of your bankruptcy case.

Conflict of Interest

Another reason why attorneys cannot accept no money down or partial payment option is the fact that it is a conflict of interest for them to do so. How is it a conflict of interest? As indicated previously if you owe money to your bankruptcy attorney they are considered a creditor in your case. Well, you cannot be both an attorney and a creditor in the Chapter 7 case because there is potential for conflict to arise. How will you know whether the attorney is acting in your best interest (to discharge all your dischargeable unsecured debts) or in their best interest as a creditor (to collect what is owed to them)? It is an ethical violation for them to represent you in your bankruptcy case if there is a conflict of interest.

Attorney Fees Can Be Paid By a Third Party

If you need to file for bankruptcy under Chapter 7 and do not have the money to pay attorney fees you can have a third party pay the fees and costs. A friend or family member may help you and pay your attorney fees and costs. It has to be disclosed that a third party paid the fees and the third party cannot have any control of the bankruptcy case. Sometimes when a party pays the fees and costs they think they have a right to be involved and influence the bankruptcy filers decisions. Just because someone pays the fees and costs of another does not mean they are a client. The third party payor is not the client. It is a good idea to have the third party payor and client sign a disclosure regarding the payment of the attorney fees and costs.

File A Chapter 13 Case Instead

Payment of attorneys’ fees and costs is different in a Chapter 13 reorganization case. In a Chapter 13 case attorneys’ fees can be paid through the Chapter 13 plan. If the attorneys’ fees are $4,000 and the Chapter 13 plan is 60 months, then about $67 of your Chapter 13 plan payment will go to your attorney to pay their fees once the Chapter 13 plan is approved by the bankruptcy court. Most bankruptcy lawyers will ask for a portion of the attorneys’ fees upfront ($1,000 before filing the case for example) and then rest of and the majority of the attorneys’ fees in the Chapter 13 plan (Remaining $3,000 in Chapter 13 plan). So, you may be able to find an attorney that is willing to do a lot of work for a very little amount of money, then be paid the rest of the attorneys’ fees through the Chapter 13 plan.

Do Not Wait Until The Last Minute to Seek Counsel

So how can you avoid this impossible situation of needing to file bankruptcy immediately but not having enough money for a bankruptcy attorney? The best way to go about filing for bankruptcy is to plan it in advance. Do not wait until the last minute to file for bankruptcy. At the first sign that you are having financial difficulties and may not be able to repay your obligations you should consult with a bankruptcy lawyer. Many law firms provide payment options so you can pay them in installments. They can file your bankruptcy case after all the fees are paid. It may take several months, but you can file for bankruptcy afterwards and obtain that coveted fresh start. If you wait until you receive the wage garnishment orders it will be too late. While there are plenty of lawyers that accept installment payments, there are also plenty of law firms that do not. You should ask the firm before scheduling an appointment with them whether they accept installment payments or not.