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In most jurisdictions, a person overwhelmed by debt can declare a personal bankruptcy (for example, filing for a Chapter 7 bankruptcy in the United States, or for a Verbraucherinsolvenz in Germany).

Reading articles on celebrities filing bankruptcy (Toni Braxton files for second bankruptcy, Boris Becker’s life ‘ruined’ by bankruptcy conviction, says lawyer), it seems that people typically retain a lawyer to represent them during the bankruptcy proceedings. However, does declaring bankruptcy not mean that you have virtually no assets left, and will remaining assets not be frozen during the bankruptcy proceedings?

So how can a person filing bankrupty afford a lawyer? Is the lawyer paid from public funds? Or are there exceptions from the asset freeze?

I am most interested in answers about Germany or the US - other perspectives are welcome, too.

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    In Germany, the vast majority doesnot use a lawyer but pro-bono / free-of-charge debt counseling services.
    – Roland
    May 11 at 12:37

3 Answers 3

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Typically, people who have the very least assets and little prospective income expected (e.g. homeless vagrants) don't file for bankruptcy. The creditors can't get blood out of a turnip so there is no advantage of doing so. Also, often no one extends them credit in the first place, so they have few creditors in most cases.

Instead, people file for bankruptcy when:

  • They have significant assets and significant debts and want to preserve assets exempt from creditors such as equity in a house that benefits from a homestead exemption (in which case payment of a bankruptcy lawyer is a debt with priority over other debt's of the debtor in bankruptcy), and/or

  • They have significant future income prospects and want to preserve future income by eliminating debts, and pre-pay the bankruptcy lawyer with assets saved by not paying creditors when due. These prepayments are not "clawed back" because paying bankruptcy lawyers is a debt that has priority in bankruptcy over other creditors, and/or

  • They have assets that would be sold for fair less than fair market value in ordinary auction sale type debt collection methods, and would realize far more value (possibly paying off debts in full as a result) in a bankruptcy. If there is a realistic probability of payment in full of the debts in an orderly disposition of those assets, often an individual Chapter 11 bankruptcy is filed instead.

Also, a simple bankruptcy in Chapter 7 for someone with no assets that are not exempt from creditors (which is the predominant form of bankruptcy filing in the U.S.) isn't expensive and is usually mass produced by paralegals with only light lawyer supervision. It can usually be done for as little as $300-$500 of attorney fees, plus filing fees and mailing fees, for a total of well under $1,000. Sometimes a bankruptcy petitioner can get friends or family to advance or give them that money for that purpose.

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I don't have enough points to comment on Phillip's answer, but it appears wrong for the USA. First, declaring personal bankruptcy is not a lawsuit. Second, personal bankruptcy does not usually qualify for legal aid.


Did you not Google your question? I see good answers on Quora and Reddit. I am answering this question for merely personal bankrupts who are almost penniless.

One straight forward answer is that a penniless bankrupt may need to sell his "vehicles, houses or other goods and property".

Obviously a person requiring bankruptcy doesn't have a bunch of cash. But they can probably cobble together $200-300 for that flat fee. The game for the lawyer is volume. They collect the flat fee from lots of different folks. Much of the work is template-driven. Meaning, they're don't usually have to create a lot of original work, which allows him to accept more clients.

Most states have a law either (1) making sure legal fees can’t be gotten rid of in bankruptcy; or (2) making sure your lawyer gets paid before most other creditors.

I quote https://www.thebankruptcysite.org/resources/bankruptcy/bankruptcy-lawyers/how-do-bankruptcy-lawyers-g.

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.

. . .

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.

. . .

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.

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  • The U.S. is much less generous with regard to legal aid than most developed countries. A bankruptcy petition filing is basically a civil action (i.e. a lawsuit) for most purposes, however, and adjudicates the rights of a variety of people in the property the bankrupt debtor owns at the time of filing. Bankruptcy is an in rem proceeding much like a probate case or a quiet title action or a real estate foreclosure or a civil forfeiture action or an admiralty action to adjudicate rights in shipwrecks.
    – ohwilleke
    May 18 at 13:26
  • "Most states have a law either (1) making sure legal fees can’t be gotten rid of in bankruptcy; or (2) making sure your lawyer gets paid before most other creditors." This is false. Whether or not legal fees can be gotten rid of in bankruptcy or the priority of this creditor is purely a function of federal law which states may not modify.
    – ohwilleke
    May 18 at 13:27
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  • A wealthy person who anticipates their personal bankruptcy in the near future but still has access to liquid assets at the moment, can use those assets to hire a lawyer on retainer. Which means that they pay a lawyer now to provide unspecified legal services in the future when the need arises.
  • Should it be too late for this, then a risk-taking lawyer could take the case anyway. Either to improve their personal profile by being connected to a high-profile case with lots of media attention. Or because they hope that they will be able to turn things around for their client, make them solvent again and thus enable the client to pay them afterwards. For example if the reason for the clients bankruptcy is a huge monetary fine imposed by a court, then a successful appeal could lead to that fine being lifted and the client being solvent again.
  • A less wealthy person can apply for legal aid in many jurisdictions. Legal aid means that when a person involved in a lawsuit (civil or criminal) but is unable to pay for their own legal costs, they can under some circumstances get the state to pay for their legal representation.
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  • While #2 is certainly possible, I've never actually seen a lawyer take a high profile bankruptcy case for these reasons, and in U.S. law a lawyer is forbidden from receiving fees for pre-bankruptcy work in the post0-bankruptcy period without bankruptcy court approval.
    – ohwilleke
    May 18 at 13:22

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