Can Debtors Afford Bankruptcy? Finding Low-Cost Bankruptcy

There seems palpably in the air, one ominous additional burden for the average heavily indebted American debtor and consumer in today’s dire national economic conditions who may perhaps see his only recourse for some relief, in filing bankruptcy: finding low-cost bankruptcy, finding low-cost bankruptcy that you can afford. Meaning, in essence, a non-lawyer pro se alternative.

The latest figures just released by the Administrative Office of the U.S. Bankruptcy Courts on the February 2009 bankruptcy filings, made one vital reality crystal clear to almost every one, namely, that the rate at which the increasingly overburdened and restive American debtors (both individuals and businesses) are filing for bankruptcy, is at its highest levels since the now-famous (or infamous, many would say!) draconian changes of 2005 to the U.S. bankruptcy law. But, even more significantly, that the new filing rate is ominously beginning to return to the old “hated” high bankruptcy filing levels that the nation had reached before that new law was passed in 2005, supposedly meant to correct and drastically curtail or reverse the then pre-existing high filing levels.

This latest trend in American debtor bankruptcy filings strongly underscores a few fundamental points, among others. First, the depth and gravity of the financial straights and difficulties in which the average American consumer and debtor is in today. Second, the reality that, no matter how difficult a legal hurdle and impediment the institutional powers that be (the Congress, the lawyers, or the financial institutions, the courts, etc) may try to place on the path of the American debtors to try discouraging or making it more difficult for them in seeking the bankruptcy relief from their debt burdens, when it really comes time of dire financial and economic crunch, Americans will somehow still find a way, and will still persevere and persist even against all odds, in demanding their constitutional rights to be heard in bankruptcy; and thirdly, the critical necessity, for the average debtor, for finding low-cost bankruptcy filing alternatives to lawyer.

Elizabeth Warren, a Harvard Law School professor and author of several books on bankruptcy, probably sums up the point best this way, alluding to the persuasion of the Congress by various special interests to pass the 2005 law that restricted debtors from filing for bankruptcy: “The credit industry [and other vested interests] did its best to drive up the cost of filing [for bankruptcy]. But when families are in enough trouble, they will fight their way through the paper ticket and higher attorneys’ fees to get help,” adding that “The word is now leaking out [once again] that the bankruptcy courts are open for business.”


But, even most importantly than that, from the standpoint of the average bankruptcy-seeker today, this raises one fundamental questions, however. Namely, just how do the current growing army of increasingly despairing American debtors who not only seek to file for personal or business bankruptcy, but in a great deal of cases, truly NEED to file one, AFFORD to file bankruptcy – in particular, the high lawyers’ legal cost of filing for bankruptcy? How do these debtors get or find low-cost bankruptcy? A bankruptcy that debtors can reasonably afford?

Some 1.1 million (1,064,000) American debtors filed for bankruptcy this past 2008 year – filings which, many analysts are quick to remind us, were carried out by these debtors in spite of, and under tough conditions of, a whole host of stringent, restrictive requirements and drastically increased legal fees imposed by the 2005 law. But, even more significant, from the stand point of the debtor or bankruptcy-seeker, is another closely related FACT: that, worse still, according to experts, THERE’S NEARLY AS MANY AMERICAN DEBTORS MORE who wanted to file for bankruptcy and are eligible, but could not, because they simply couldn’t AFFORD the lawyers’ legal fees. These are debtors who Justin Harelik, a bankruptcy lawyer with Price Law in Los Angeles, call the “unofficially bankrupt debtors” – debtors who are all but bankrupt but only lack the lawyers’ hefty price to make their status official!


Year…….Bankruptcy……. Filings……… Source & Notes
1998…….1,442543……….AO data……(Office of U.S. Courts)
1999…….1,319,465………AO data
2000…….1,253.444………A.O data
2001…….1,492-129………AO data
2002…….1,577,561……..AO data
2003…….1,589,383………AO data
2004…….1,597,462………AO data
2005…….2,078,415………AO data……..includes spike in filings before 2005 bkr. law
2006…….590,544………..AACER data…(Automated Access to Court Records)
2007…….826,665………..AA.CER data
2008…….1,064,000………AACER data


In deed, though many bankruptcy lawyers would rather that it be sugar-coated, many other lawyers, themselves, objectively acknowledge that the lawyers’ legal fees for bankruptcy is a principal frequent issue and concern to debtors and clients in bankruptcy law practice.

“You have to pay the Chapter 7 legal fees upfront in cash. You can be too poor to go bankrupt,” is how Professor Robert M. Lawless of the University of Illinois College of Law once put it.

Another observer, Jenny C. McCune, a contributing editor at, notes that rather astoundingly, we’ve now come to the point where a debtor may have to “finance bankruptcy filing,” adds: “It may sound like a Catch-22…you have no money so you’re filing for bankruptcy, but you need [legal fee] money so you can file for bankruptcy.”

Jonathan Ginsburg, bankruptcy attorney, Atlanta, Ga., explains that in phone conversations he often has with callers facing severe financial crises who are pondering possible bankruptcy, after their initial question which is often general in nature, “The next question I get has to do with fees: ‘If I have no money, how am I supposed to pay for a lawyer?’”


Bankruptcy lawyers, schooled in the art of argumentation and the defense of even the clearly indefensible, particularly when it centers on the protection of a lucrative means of making a living, would often plunge into what, in essence, are really deep philosophical arguments in justification of the high fees they charge – it is really still a “bargain” for debtors, considering the much larger sums they stand to discharge in bankruptcy; if a debtor is “really” hard pressed enough by his debt burden and is “serious” about freeing himself of it, he’ll somehow find a way; a debtor, if he is really “serious,” can always find the lawyer’s fees somewhere by, say, withholding the payments he would have had to make to other creditors and then using it to pay the lawyer to free him of the bigger debt burden, etc., etc. It is a complex web of arguments that would have to wait for another day to address. But, for our current immediate purposes in this article, the relevant issue is crystal clear. The point, clearly, is that for the average American debtor today, already reeling from the high debt burden which is the prime object he’s out attempting to address through bankruptcy filing, the average lawyer’s fee for bankruptcy (some $2,000 or more for the simplest Chapter 7 bankruptcy, and $4,500+ for its Chapter 13 counterpart) is high, in deed even exorbitant, and frequently is just plain beyond his means – in short, simply UNAFFORDABLE.


Seems that the bankruptcy lawyers, through greed and monopolistic instinct, are gradually pricing themselves out of the personal bankruptcy filing business, that the only realistic alternative now left to be tried, seems to be a non-lawyer low-cost bankruptcy option.

“Surveys have shown that many attorneys have doubled their fees to cope with new requirements imposed by the BAPCPA of 2005. Many thousands of debtors have therefore been priced out of lawyer representation in their bankruptcies,” asserts Stephen Elias, a California attorney and bankruptcy specialist and author of several books on the subject. “Because of rules governing the practice of law, the only legal alternative to attorney representation is self representation… bankruptcy petition preparers can assist with your paperwork.”

The point then is crystal clear. The fundamental task at hand this very minute in the field of bankruptcy, is devising a credible system that is low-cost for filing bankruptcy, which is simple, straightforward, and readily accessible, and is, above all, AFFORDABLE to most debtors who legitimately seek or need bankruptcy and are qualified and eligible to file under the eligibility rules. It is, after all, no “gift” or some kind of “favor” being meted out by “the law,” or some kind of mercy-peddling do-gooders of the legal establishment. But, a direct sacred right and gift of the American Constitution.

It is a task which confronts us all, particularly the bankruptcy constituency and the bankruptcy industry powers-that-be who control the current bankruptcy system – the financial and credit industry, the courts, the Congress, but including private entrepreneurs and ideas persons who can come up with new or fresh ideas about how to fix the current broken personal bankruptcy system, and yes, the current bankruptcy lawyers and bar, and others.

But, of more immediacy and urgency in the mean time, however, while we await such a new system to be designed by the responsible parties, qualified American entrepreneurs, institutions and entities who are able, should be free to come up with practical and effective ways and methods – alternatives to the current wholly deficient and inadequate lawyer-controlled bankruptcy system – that actually enable legitimate bankruptcy seekers to exercise their legitimate constitutional right to seek the bankruptcy relief option when and if necessary – simply and AFFORDABLY.


The point is that, America, in both its public as well as private sectors, must fast prepare for, and devise and implement, a drastically different but effective bankruptcy filing system that provides the current million plus per year and the upcoming additional millions of bankruptcy filers who will be coming into the bankruptcy filing pipeline per year, a genuinely affordable means for them to file for bankruptcy – the 1.4 million American filers (or more) that are expected to seek the bankruptcy relief in 2009 calendar year alone, and beyond.


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