When you can no longer afford to keep up with monthly payments for your credit cards and loans, you might consider filing for Chapter 7 bankruptcy. While this legal process can be an essential tool for escaping debt, it’s important to do it the right way. For example, opting for a zero or low money down Chapter 7 bankruptcy could actually make your financial situation more difficult. To learn more about this option and how you can avoid it, take advantage of this brief guide.

Why You Shouldn't Choose a Zero or Low Money Down Law Firm for Your Chapter 7 Bankruptcy or Make Payments on Attorney's Fees After Your Chapter 7 Is Filed.

When you file for bankruptcy, you’ll need to provide the bankruptcy attorney with a fee for their time and efforts. As an incentive to file, some attorneys have begun offering “zero or little money down” bankruptcy packages, sometimes called bifurcated fee arrangements. Typically, the client pays little to nothing for the attorney to start filing the bankruptcy case and signs a contract for pre-petition bankruptcy attorney services. At this point, the law firm normally just makes a list of creditors that the debtor owes and files a skeletal or bare bones bankruptcy petition to stop creditors from collecting. In a few days, after the bankruptcy petition is filed, the attorney will ask the client to sign a post-petition contract for legal services to file the remaining necessary bankruptcy paperwork and set up a payment schedule. Over the next several months, the client will need to pay the attorney in increments which might leave the client in the same position of not being able to meet monthly expenses because of the payments on attorney's fees.  The goal of Chapter 7 Bankruptcy is a fresh start and making payments on attorney's fees after your case is filed is not a fresh start.

Some law firms do not have you sign a post-petition contract for legal services and instead do most of the work for little or no money down and agree to accept payments after the case is filed.  In these cases, the law firm should advise you that the fee owed to the law firm is an unsecured pre-petition debt which could be subject to discharge in bankruptcy.  

Unfortunately, many times this ends up costing clients more money in the long run or causes the case to be dismissed before the discharge order is entered. That’s because some attorneys outsource the credit collection of the legal fees to a third party. Since they have to compensate this third party, they charge the client more for each monthly installment. While the attorney does the same amount of work they would if you’d paid upfront, you’ll be paying more for spreading out your payments. Some attorneys won't file your Financial Management Course or pay your filing fee until you have paid toward their attorney's fees and this could cause your case to be dismissed before your discharge order is entered.

How to Save Money for Attorney Fees

When choosing a “zero down” bankruptcy and a payment plan, you could end up paying two or three times what you would normally owe. Instead, the best way to fund a bankruptcy filing is to pay your attorney upfront. To cover the fees, you can stop paying debts that are about to be discharged by filing for Chapter 7 bankruptcy, such as credit card debts, or wait until you receive your tax refund and then pay an attorney a fair price to cover your entire Chapter 7. 

If you still don’t have enough to pay your attorney, consider filing Chapter 13 instead and possibly converting your case to Chapter 7 later.  If that doesn't work, consider contacting legal aid organizations to see if you qualify for free legal services.  

If you’d like to learn more about Chapter 7 bankruptcy, reach out to Bueker Law Firm of Stuttgart, AR. Attorney Jeremy Bueker has over 20 years of experience helping clients in Little Rock, Pine Bluff, and Helena solve their financial puzzles. He can help you decide whether Chapter 7 or 13 is right for you, and show you how to avoid foreclosure and repossession. To learn more about his practice areas, visit the website, or call (870) 673-1313 to schedule a consultation.