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Are You Too Broke to File Bankruptcy?

January 14, 2011

 "If I had that kind of money, I wouldn’t have to file bankruptcy!"

All bankruptcy attorneys hear that frustrated statement from time to time. Some individuals wait until they are dead broke before contacting a bankruptcy attorney for help. By that time there is little or no money to pay bills, let alone court fees, credit counseling fees, and attorney fees. The article today is about helpful advice on how to get the money for your attorney without creating more difficulty for yourself.

One popular choice for many debtors is a loan from a family member. If you borrow money from a relative to pay the bankruptcy fees, you must identify that relative as a creditor on your bankruptcy schedules. In most cases this debt will be discharged along with other unsecured creditors. Despite the bankruptcy discharge, you are not prohibited from repaying the debt if you feel a moral obligation to do so.

On the other hand, if your relative gives you the money as a gift, it does not need to be disclosed. However, the money must be included as income on the Means Test. In only a small number of cases would this situation cause problem with the Means Test.

Selling property is another option to pay the bankruptcy fees. There is nothing wrong with selling property for fair market value prior to a bankruptcy. Selling a non-exempt asset (one that you may lose to the trustee) makes good financial sense. You must disclose the sale in your bankruptcy schedules and account for the proceeds.

Some debtors cash out investments or take money from a retirement account. These choices may carry tax consequences and are also normally counted as income on the Means Test. Other debtors use income tax refund money. It makes sense to use non exempt cash money to pay bankruptcy fees rather than see it lost to the bankruptcy trustee.

Some clients are able to save money from their paychecks after they decide to file bankruptcy. Generally, once you decide to file bankruptcy, you should stop paying credit cards and other unsecured, dischargeable debts. Secured debts that will survive the bankruptcy should be paid along with utility bills and non-dischargeable debts.

Using a credit card to pay your attorney can create difficulties in your bankruptcy case. Credit card charges within 90 days of the bankruptcy filing are presumptively nondischargeable. Likewise payday loans taken immediately before the bankruptcy will have to be repaid.

As you can see, an experienced bankruptcy attorney can offer many suggestions on how to raise the money to pay the bankruptcy fees. Discuss your financial situation before you sell, borrow, or charge anything. Good advice from a knowledgeable source can save you from headaches down the road.


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