How Do Bankruptcy Lawyers Get Paid?

If you're considering filing for bankruptcy, money is already tight, so it makes sense that you'd wonder how bankruptcy filers come up with the money to pay for an attorney. Learn the factors that affect how a bankruptcy attorney gets paid, including:

• whether family and friends can help pay the lawyer's retainer
• if you have bills you can eliminate in bankruptcy, and
• the bankruptcy chapter you intend to file.

For targeted information, check out our quick ten-question bankruptcy quiz—it can spot potential bankruptcy issues fast. Also, make sure you steer clear of trouble by learning what you should and should not do before filing for bankruptcy.

How Do I Get the Money to Pay a Bankruptcy Lawyer's Retainer?

If you're wondering whether you can charge the fees, the answer is no—you can't use your credit card shortly before bankruptcy to pay your lawyer. But a friend or family member can do just that—and many do.

It's common for a filer to reach out to family and friends for help after meeting with a bankruptcy lawyer—especially when realizing that financial relief is in sight. And those close to the filer often recognize that wiping out debts in bankruptcy is more cost-effective than continuing to help the filer get by each month.

But when that's not possible, most filers stop paying bills that will be "discharged" or wiped out in the bankruptcy case, such as credit card balances, medical bills, payday loans, and more, and use the funds toward bankruptcy fees instead. Bankruptcy courts accept this practice, but you'll want to ensure that you are qualified to file for bankruptcy before you stop paying bills. Otherwise, you might find yourself in a worse place financially.

Also, you'll likely want to continue paying any nondischargeable debts you can't erase in bankruptcy. If you're unsure how to proceed, your bankruptcy lawyer can help.

When Do I Need to Pay a Chapter 7 or Chapter 13 Bankruptcy Lawyer?

It will depend on the type of bankruptcy. If you already know the chapter you'll file, skip to the section that applies to you.

How Chapter 7 Bankruptcy Lawyers Get Paid

Although bankruptcy lawyers need to get paid for their services, they don't usually overcharge, so the cost to file for Chapter 7 bankruptcy is within the grasp of most people. And you'll know how much you'll pay upfront because most charge a flat fee that covers the entire process.

However, one of the things many filers are surprised to learn is that a Chapter 7 attorney must get full payment before filing your Chapter 7 case. So if you have an emergency filing and need to file right away to stop a wage garnishment or foreclosure, plan to have the full payment ready to go. Here's why.

Once filed, the automatic stay that prohibits most creditors from collecting from you prevents your attorney from collecting any unpaid fee, too. And any remaining legal fees you owe get wiped out with your other qualifying debt once you receive the bankruptcy discharge.

What About Chapter 7 Bankruptcy Lawyers Who Advertise Payment Plans?

Most lawyers will let you pay your attorneys' fees in installments if you need time to come up with the entire retainer. But as discussed, the lawyer won't file the case until you've paid the total amount due. It's not uncommon for people to hold onto their funds until they have the entire amount once they learn that paying in installments won't speed up the Chapter 7 filing process.

But it's a good idea to give the attorney some amount because by doing so, you'll have officially retained a bankruptcy lawyer. A creditor who calls while you're getting your fee together won't be able to harass you. You can refer them to your attorney.

How Chapter 13 Bankruptcy Lawyers Get Paid

Paying Chapter 13 fees works a bit differently. Unlike Chapter 7, you don't have to pay the total amount upfront. Instead, you can pay a good portion through the Chapter 13 repayment plan. The specifics will depend on the particular bankruptcy lawyer's practices.

Some bankruptcy lawyers will accept as little as $100 to file your case plus the court filing fee. But they're doing the work assuming that you'll stay in the plan. If you can't pay your monthly Chapter 13 payment and the court dismisses your case, the lawyer won't receive full payment. You can learn about calculating a Chapter 13 plan payment here.

Because of the risk involved, many lawyers will want the same amount they would receive for a Chapter 7 case before filing and will let you pay the remaining amount—probably another $1,500—through the Chapter 13 plan. In riskier cases, the lawyer might ask for more.

Navigating Your Bankruptcy Case

Bankruptcy is an unusual area of law because it's essentially a qualification process. The laws provide instructions for completing a 50- to 60-page bankruptcy petition, and because all rules apply in every case, you can't skip a step.

The forms and resources below will help you find more information. Also, you can use this list of Chapter 7 and 13 bankruptcy forms to see where this topic falls. And this handy bankruptcy document checklist will help you gather the things you'll need to complete the petition.

Need More Info?

We want to help you find the answers you need. Go to TheBankruptcySite for more easy-to-understand bankruptcy articles, or consider buying a self-help book like The New Bankruptcy by Attorney Cara O'Neill.

We wholeheartedly encourage research and learning, but online articles can't address all bankruptcy issues or the facts of your case. The best way to protect your assets in bankruptcy is by consulting with a local bankruptcy lawyer.