How Much Does Bankruptcy in Colorado Cost and How can I Pay for Bankruptcy?

August 11, 2010

By: David M. Serafin

As a Denver bankruptcy lawyer, I’m always asked, “how much does a bankruptcy cost?” My answer is that it depends. The filing of a petition for an unemployed debtor with a rather simple financial situation will cost less in attorney’s fees than that for a debtor who owns multiple businesses and/or investment properties, and who otherwise has a complicated set of affairs.

Of course, most everybody who files for bankruptcy is in dire financial straits. But, as you should emphasize hiring an experienced Denver bankruptcy lawyer, the focus of how much to pay to your lawyer should be based on the value you receive, and not just price.

Compared to the amount of unsecured debt we can discharge in a chapter 7 or chapter 13 in Colorado, the amount you’re paying in attorney’s fees dramatically pales in comparison. For instance, I’ve represented numerous clients where several hundreds of thousands of dollars in credit card debt and medical bills have been discharged. Typically, more unsecured creditors means more work and more legal maneuvering by your lawyer to protect your rights. And, if you retain what I refer to as a “bankruptcy mill’ type of law firm, chances are that your case will be passed along to an inexperienced lawyer or a paralegal, with the outcome of your case being less certain.

Regardless, another question regards how to free up funds to pay for a lawyer (once you’re certain you intend to file).

First, I always advise my clients to stop making payments on unsecured debts which will be eliminated in the bankruptcy. This includes credit cards, personal and business lines of credit, medical bills and almost any other unsecured debt (except for most student loans). There is simply no benefit to continuing to make monthly payments for credit cards the debts of which you’ll soon discharge. (This principle also applies to the monthly payments you make for an ongoing debt settlement or debt consolidation service.) You also should stop paying any secured debts relating to a property, such as a home or vehicle, you intend to surrender, as such debts (once surrendered) will be rendered unsecured once the property is transferred.

Second, although I don’t normally recommend that you raid a retirement account, such as a 401(k) or IRA, unless as a last resort (due to both income tax considerations and the fact that retirement accounts are a rare asset that creditors cannot levy upon), there are some instances where it may be worth making a retirement plan withdrawal, particularly if you’re over 59.5 years of age and if you limit the amount of funds used. (Never withdraw funds from a retirement account until you speak with your bankruptcy lawyer. As I’m also a tax lawyer, I can especially help with this strategy.)

Third, as a one-time solution, you may have a generous relative willing to temporarily loan you the funds to pay for bankruptcy, with the benefit being that such would free up more money for you to get back on your feet faster. Plus, after the case is closed, you’re permitted to pay this money back.

Last, the filing of a chapter 13 with a monthly payment plan (if chapter 13 is the better option based up your financial situation or if you fail the chapter 7 Means Test) allows for most attorneys fees earned to be paid back through the plan. In order to be fair and flexible with my clients, I almost always charge less than half of my fees directly (and not necessarily up front) with the remainder to be paid back in the plan for typically 36 to 60 months. (Under the recently enacted, stricter bankruptcy laws, chapter 13 filings are becoming quite common as many debtors simply do not pass the Means Test.)