If I’m bankrupt, how can I afford to hire an attorney for bankruptcy?

Filing for bankruptcy protection without an attorney is a treacherous venture into a legal minefield.  Neither the trustee nor the court can provide you legal advice or counsel, and essentially there is no one involved in the process who can look out for your rights and best interests.
Although most of the bankruptcy forms are relatively self-explanatory, there are any number of places where you could land yourself into trouble by inadvertent omission or error.  Schedule C (your property exemptions) and the Form 122 (the means test) are nearly impossible to do without legal training and access to the resources you need to know the relevant and applicable numbers.  Furthermore, the forms cannot fully convey the myriad of information concerning deadlines, documents, what to look out for (issue spotting), or even ensuring that you’ve asked yourself all of the questions you need to ask yourself.  There are limits in how much information and strategies you can glean from the forms, and the forms don’t provide you access to the bankruptcy statutes nor all of the case law that may be relevant to your case.  There are many tricks and strategies attorneys develop over their entire careers to address all of the various issues that can crop up, and if you choose to file without an attorney, you’re denying yourself access to that wealth of information.
But attorneys do not come cheap, particularly to someone who is struggling to pay their bills.  Here are the top three tricks that most people use to pay for their bankruptcy case.
There are exceptions to every rule, but in virtually every bankruptcy case, you will be advised by your attorney – as a matter of course – to stop making payments on your unsecured debts in anticipation of your bankruptcy filing.  This advice is not given because the attorney wants these funds, but because there are actual legal impacts to a bankruptcy case if you continue to pay your unsecured creditors – referred to as “preference payments”.  To say nothing of the fact that you’re throwing away money on debts that will ultimately be discharged in your bankruptcy filing.  Now, most people will need to continue paying on some debts – notably secured debts like mortgages and car loans that you intend to keep – and each case is different, so defer to your attorney’s advice on this matter.  But in general, you will be advised to stop making payments on your credit card bills, medical bills, payday loans, and more.  Side bonus: it frees up some money to pay for your bankruptcy case.
Most attorneys offer some sort of payment plan.  Every attorney is different in setting their own internal policies, and some are more flexible than others.  I consider myself fairly flexible – my clients can make any sort of payment with no minimum requirement and no specific due dates – provided that something is paid once a month.
Taking advantage of payment plans to retain an attorney provides you with limited formal protections under the FDCPA, but also some informal protections against creditors seeking to file lawsuits against you.  In my practice, many of my clients make smaller payments until they receive their tax refunds in the spring and use those to pay off whatever their remaining balance is – usually with plenty leftover to spare – depending on the size of their refund.
Admittedly not an option for everyone.  Even those who have access to this source may be too embarrassed to ask for the help.  But some people go this route, and there’s nothing wrong or illegal about it.  However, if you do choose to borrow money from a friend or family member, make sure that you wait to pay them back until after you receive your discharge.  Payments made before your bankruptcy case is filed could be considered an “insider preference”, and without getting into a lengthy discussion about that topic – suffice to say – this is not something you want to have to disclose to the trustee.  The statutes are fairly silent about money paid to insiders after a case is filed but before the discharge (the 3-4 months that a Chapter 7 case is typically pending).  To play it safe, I advise waiting until after the discharge, because the statutes expressly permit voluntary repayment of any debt.

Bankruptcy Mills

Not all law firms (or attorneys) are the same.
In recent months, I’ve worked with several people who had the unfortunate experience of having hired a bankruptcy mill to represent them.  These people lost a lot of money, for which they have very little recourse, and ultimately got screwed over.
First, let’s clarify what I mean by “bankruptcy mill”.  I’m referring to large law firms that offer seemingly low rates to file bankruptcy.  They’re often located in large cities, like Chicago, but claim to have local attorneys who will work with you.  These are firms that make their money by working in high volume and performing low quality work; which oftentimes falls well below the standard of care required of attorneys, in terms of competence and diligence.
In many of these cases, clients never meet with or speak to an attorney.  Documents are drafted by staff, and never reviewed by an attorney.  Phone calls and e-mails go unanswered.  Filings are deficient.  Motions and objections go unanswered.  Cases are dismissed.
Over the years, I’ve watched these firms continue to exist and operate.  They have A+ ratings with the Better Business Bureau, even though their business practices should – by any standards – get most of their attorneys disbarred (or suspended or sanctioned).  Accordingly, I’ve long ago lost my faith in the various regulatory agencies that exist to police these sorts of things.
So, for my part, I wish to issue this warning.
Be careful of who you hire to be your attorney.  Insist on an in-person consultation, and make certain that you’re talking to an actual attorney.
Make sure that all of the fees have been disclosed.  Many attorneys out there will lowball their quote and not include important things like court filing fees, counseling course fees, or credit reports.  You might pass on hiring one attorney because you think they’re too expensive and because one of these mills gave you a lower quote, only to find out that the mill’s quote didn’t include filing fees – and in the end, the first attorney was actually cheaper!
Everyone must review and sign actual bankruptcy documents.  If a case has been filed for you without you having to look through a (roughly) 60 page document beforehand, that should throw up several red flags.
If you retain an attorney and they’re not meeting your expectations, switch attorneys BEFORE you file your bankruptcy case.  Yeah, you’ll probably be out the retainer fee, but it’s worth it.  Most attorneys are reluctant to jump into a case that has already been filed, because it raises several potential issues, conflicts, and traps.
In no way do I intend to suggest that all large law firms are bad and all local sole practitioners are good.  There are good quality large firms out there.  There are bad sole practitioners out there, as well.
But the main moral of this story is to realize that you get what you pay for.  If you’re shopping around looking for a deal on attorney fees, you should be suspicious of a fee quote that is substantially lower than all of the others.  At the very least, ASK why their quote is so much lower.
They might have a good reason.  For example, Attorney X might not have as much experience dealing with a particular issue in your case, so he needs to charge more to do extra research, whereas Attorney Y has a lot of experience handling cases similar to yours, and can charge less.
But frankly – most of the time – Attorney Y is going to offer you sub-par service.  And it won’t be worth the few dollars that you might have saved.
Shopping around and looking for deals is good for things like toilet paper and laundry deterrgent.  But if you carry that attitude when you’re looking for medical or legal professionals, discount doctors and discount lawyers are almost always going to disappoint you.  It’s a fair bet that you’re going to wish that you had spent a little extra money for better service.
After all, what’s a few hundred dollars when you’re getting tens of thousands of dollars discharged in bankruptcy?

How having your wages garnished could lead to a free bankruptcy.

A lawsuit has been filed against you.  Your wages have been garnished.  You decide that you can’t stay ahead anymore, and you decide to file for bankruptcy.
If the amount of your wages that have been garnished in the 90 days prior to filing bankruptcy exceeds $600, then it constitutes a preference under 11 U.S.C. § 547(b).  If the trustee lays no claim to the funds, the whole amount garnished in the 90 days prior to filing bankruptcy can be recovered under § 522(h).
Okay, admittedly, this isn’t a ‘free bankruptcy’ so much as it is a reimbursement (and likely only a partial reimbursement, depending on the recoverable amount relative to the costs to file bankruptcy).  Also, the money being reimbursed was your wages anyway, but since there was a legal garnishment, most people are simply appreciative to get it back.
But what about a real free bankruptcy?  Again, it would be a reimbursement, but there are ways to make creditors pay for your bankruptcy out of their funds (not yours) if they knowingly violate the automatic stay.  You are entitled to recover actual damages (for example, any wages actually garnished after your case was filed) no matter what.  But if you can prove that the creditor knowingly violated the stay, punitive damages can be awarded, too, and that can potentially reimburse you in full for the cost of bankruptcy.

Court Filing Fee Increase

The Judicial Conference of the United States has announced an increase to several filing fees – the most pertinent of them being the filing fees for new petitions under Chapter 7 and Chapter 13.  These changes go into effect June 1, 2014.
Cases filed on or before May 31, 2014 will enjoy the current filing fee rates of $306 (Chapter 7) and $281 (Chapter 13).  Cases filed on or after June 1, 2014 will have to pay the new rates of $335 (Chapter 7) and $310 (Chapter 13), which represents a $29 increase in each fee.

Mail Solicitiations for Debtor Education Course

Most people who file for bankruptcy are required to complete two counseling courses.  One pre-filing “credit counseling” course, and a second post-filing “debtor education” (aka “financial management”) course.  The first course is required to be eligible to file for bankruptcy, the second course is required to earn your discharge.
Many people, after they file for bankruptcy, will receive letters from counseling courses attempting to solicit their services to newly filed debtors.  Do you need to pay attention to these letters?
If you have hired another attorney, perhaps.  If you’re not sure whether you have already paid for / taken your required courses, contact your attorney to verify.
If you have hired Holbus Law Office, LLC, the answer is no.  You can disregard those solicitations.
As part of our fee package, all of our Chapter 7 clients are automatically registered for their counseling courses, and will receive login instructions at the appropriate time.  All of our Chapter 13 clients are enrolled in the first credit counseling course.  Our Chapter 13 clients, however, are not charged for nor enrolled in the second counseling course because of the availability of a free (and frankly, superior) course offered by the Chapter 13 Trustee.

Debit Cards Now Accepted

Later this week, Holbus Law Office will begin accepting debit cards for payment of attorney fees.  We have had a dramatic increase in requests for debit card payments recently, and after carefully reviewing the Wisconsin Supreme Court Rules governing attorneys and the use of debit and credit cards, we have decided to open an account through Square.  You can learn more about Square here.
There will be some restrictions on these payments.  Some of these restrictions may be lifted after we gain some experience with this process (noted with an asterisk).  Some of these restrictions will be permanent because of the Supreme Court Rules and other laws.

  • Debit cards may only be used to pay for attorney fees (advanced fees).  They cannot be used to pay for court filing fees, credit reports, counseling courses, or tax transcripts (advanced costs).
  • Only debit cards will be accepted from clients.  The word ‘DEBIT’ or ‘PREPAID’ must appear on the lower right corner of the card near the card logo (Visa, Mastercard, Discover, or American Express).
  • You must be at the office, in-person, to sign for the transaction.  We will not accept payments over the phone, by fax, by mail, or by e-mail.
  • We will only accept cards with the client’s name on them, and the client must be present.
  • Clients who have bounced checks in the past will not be allowed to pay with a debit card.
  • We will not accept credit cards, even if it belongs to a third party.
  • We do not anticipate that we will be charging processing fees for this service.

A side-by-side comparison of Chapter 7 and Chapter 13 Bankruptcy.

Chapter 7
Chapter 13
Liquidation of non-exempt assets, discharge of general unsecured debts.
Reorganization and repayment plan.  Debts split into categories. Some paid in full, others paid a percentage based on income and other factors.
Time between filing and discharge is approximately 4 months.
Time between filing and discharge is approximately 3-5 years.
More Expensive
Must be below median or be able to “beat” the Means Test.
Surplus disposable income on either the Means Test or the budget.
Prior Bankruptcy
Ineligible to file if filed a prior Chapter 7 in the last 8 years or a prior Chapter 13 in the last 6 years.
Eligible to file even if not eligible for a discharge. Eligible for discharge 4 years after prior Chapter 7 or 2 years after prior Chapter 13.
If equity exceeds allowable exemptions, trustee can sell for benefit of unsecured creditors.
Assets are not liquidated, but repayment plan may require a minimum threshold paid to unsecured creditors to make them as whole as they would have been under Chapter 7.
Stay Protections
Both chapters stop collection efforts, lawsuits, wage garnishments, and utility disconnection.
Repossession & Foreclosure
Automatic stay suspends pending actions temporarily, but no adequate protection for arrears.
Arrears are cured. Foreclosure and repossession fully stayed pending successful completion of repayment plan.
Codebtor Stay
Other Issues
Preference payments, insider payments, transfers of assets, excessive gambling losses, and fraudulently incurred debt all pose the risk of adversary proceedings or denials of discharge.
Chapter 13 is sort of a fix-all remedy to anything that might be a problem in Chapter 7. Many issues become non-issues, or are mitigated with a floor amount paid to unsecured creditors spread out over the life of the repayment plan.
Non-dischargeable debts simply survive the bankruptcy.
Certain non-dischargeable debts (priority debts, such as taxes and child support) are paid in full.  Other non-dischargeable debts (such as student loans) can be paid down concurrently with unsecured creditors.
Most people have improved credit scores about 12 months after bankruptcy is filed, assuming they have made payments on surviving debts (e.g. mortgages, car loans, or student loans).
Credit rebuilds a little faster in Chapter 13 than in Chapter 7.