If you are unable to keep up with your debts and thinking about filing for bankruptcy, the last thing you can afford is a big legal bill to add to the pile. So it's natural to wonder if you can save money by handling all or some of the process yourself.
By law, individuals can represent themselves in a bankruptcy case, unlike corporations and partnerships, which are required to have lawyers. But it is often a bad idea, especially if your case is at all complicated.
In fact, the official website of the Federal Courts, where bankruptcy cases are tried, says in boldface type: Bankruptcy has long-term financial and legal consequences – hiring a competent attorney is strongly recommended.
One reason is that filing for bankruptcy is a multi-step process. Failing to complete all the steps, in the proper order, can result in a dismissal of your case.
Even so, there are some ways you can keep your costs to a minimum.
First, Consider Cheaper Alternatives
Bankruptcy may not be your only option – or your best one. There can be less expensive ways to resolve your debt difficulties without involving the court system.
Negotiate with creditors. You may be able to negotiate with your creditors to reduce your obligation to them or to spread your payments over a longer period of time. From the creditor's point of view, a partial settlement or a slower series of payments may be better than nothing at all, which could be the result if you file for bankruptcy and are successful.
Help with mortgage debt. If mortgage debt is the problem and you are worried about foreclosure, the Federal Housing Finance Agency suggests contacting your mortgage servicer, the company that ordinarily receives your payments. Ask whether you qualify for federal assistance through the Home Affordable Modification Program (HAMP) or Home Affordable Foreclosure Alternatives (HAFA). If you are unable to make your mortgage payments because you are unemployed, you may be eligible for the Home Affordable Unemployment Program, which can suspend your payments for a year or more or reduce them to 31% of your income.
You can learn more about these and other federal programs at the website of the Making Home Affordable Program, run by the U.S. Department of the Treasury and the Department of Housing and Urban Development.
The program also offers 24-hour telephone assistance through the Homeowner's HOPE hotline, at 888-995-HOPE (4673). The Making Home Affordable website has a list of the information you should try to have handy when you call.
While there are legitimate s of mortgage help, there are also scam artists who prey on desperate homeowners. Be skeptical of any unsolicited offers you receive to help keep your home out of foreclosure. See Avoiding Foreclosure Scams.
Talking to the IRS. In the case of tax debts, even the IRS may be willing to negotiate, offering either an extended payment plan for the taxes you owe, or an offer in compromise, reducing your tax obligation. The IRS explains the process on its website,
Bear in mind, too, that even if you are successful in your bankruptcy case, there will be some unwelcome consequences, including long-term damage to your credit report. For that reason alone, it makes sense to explore the alternatives first.
Advice from credit counseling. If you do decide to proceed with bankruptcy, one of the early required steps will be to complete a credit-counseling session. Your counselor will discuss alternatives to bankruptcy, along with providing other advice.
If You File for Bankruptcy
Saving on Filing Fees. Even if you file for bankruptcy without an attorney, you will have to pay fees to the court. You can, however, request that the fees be waived or that you be allowed to pay them in installments. Whether the court will grant that request will depend on your income, family size, and other circumstances.
Finding a Low-Priced Lawyer. You may be eligible for free or reduced-cost legal services. As with fee waivers, this depends on your income and res. To find the names of lawyers who might represent you either pro bono (free) or at a reduced rate, check with the nearest federal bankruptcy court, your state and local bar associations, and the federal Legal Services Corporation online search engine. A nearby law school may also have a free legal clinic willing to take on your case.
There are also bankruptcy petition preparers who can assist with some of the paperwork. However, they are not lawyers, can't represent you in court, and are not allowed to offer legal advice, even as to the type of bankruptcy (Chapter 7 or Chapter 13) that would be best for you to file.
The Bottom Line
There are less expensive alternatives to filing for bankruptcy. If you do decide to file, investigate the low- or no-cost legal help that might be available to you. It is likely to be preferable to attempting to navigate the process by yourself. See When To Declare Bankruptcy and How To Hire a Bankruptcy Lawyer for additional tips.
