When you can't afford bankruptcy

By Bankrate.com

It's a dilemma: You're so broke that you have to declare bankruptcy, but the experts say you should hire a lawyer, and they cost more than ever. That's become especially true since the bankruptcy law was changed, introducing additional complications to the process.

"Many bankruptcy attorneys hiked up their fees by at least 50%," says Henry Sommer, the president of the National Association of Consumer Bankruptcy Attorneys.

The rise in fees has left many broke consumers wondering whether legal help for their bankruptcies is even an option.

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Bankruptcy filers might have to fork over $1,200 to $2,500 to get most of their debts erased in a Chapter 7 liquidation bankruptcy. Consumers deemed able to pay back creditors in a Chapter 13 repayment plan may have to scrape up $1,500 to $3,500.

Attorneys argue that changes in the law have piled on paperwork, making preparations more time-consuming. They have to do additional "homework" for their clients because if anything goes wrong, such as a missing document or providing inaccurate information, the lawyers are held more accountable.

Some consumers opt to cut out the cost of an attorney altogether by representing themselves, a process known as pro se. Bankruptcy experts warn against this. They say the law is too complex and that these pro se debtors could have their cases kicked out of court because of a mistake.

Filing becomes even more expensive when a case is dismissed. The case must be refiled, and the law is less forgiving the second time around.

Debtors can consider five methods to lower their legal costs:

Add attorney payments to the bankruptcy case

Sommer explains that debtors can stop making payments on certain debts, such as credit cards, in order to pay for a bankruptcy lawyer. The attorney can identify which bills the consumer can stop paying based on an overall assessment of that consumer's level of debt.

The lawyer, he says, can also be paid through the repayment plan in a Chapter 13 bankruptcy.

A debtor who does decide to retain a lawyer should choose carefully, asking the right questions and assembling the proper documents.

Reduced fee and pro bono attorneys

Many attorneys offer free consultations, according to Sommer.

Some attorneys such as Howard Rothbloom of Marietta, Ga., provide services at a reduced fee.

Rothbloom occasionally receives clients through the Atlanta Legal Aid Society and charges them several hundred dollars. Most clients, he says, are elderly and struggle with predatory and abusive mortgage loans. Other clients are people who are or have been ill.

Getting connected with a reduced fee or free lawyer through legal aid services is an option, but the services are limited due to lack of funding, warns Barbara Moldauer, a spokeswoman for U.S. Legal Services, a federal agency that funds and monitors free civil legal aid.

Also, debtors cannot qualify for the legal service if their income exceeds 125% of the poverty level, which is more than $20,000 a year for a family of four. The poverty level is the same in all states, except for Alaska and Hawaii, where it is higher based on the cost of living.

David Yen is a pro bono, or free, attorney at the Legal Assistance Foundation in Chicago. The foundation is funded by Legal Services. He says free legal services only are available in high-priority cases to stop wage garnishment, save a home or vehicle needed for a job or medical transportation, or keep utility service.

"Cases we don't do involve someone who has a lot of debt, their property is exempt under the Illinois rules or their income can't be garnished based on Illinois or federal law," he says. "We call them peace-of-mind bankruptcies. It gives debtors peace of mind, but it's not tangible. It's not saving money, protecting property or any other benefit."

Continued: Limited legal representation

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