Bankruptcy rules allow debtors to pay filing fees in installments

People who need to file for bankruptcy often struggle to do it; not just with the emotional decision to file, but it sometimes takes a mighty effort to pay for both a lawyer and the court’s filing fee — the latter stands at $306 for a Chapter 7 case as of this writing.

Massachusetts bankruptcy lawyers who have clients who keep struggling to get up all the money necessary to file a case should be aware that the bankruptcy rules may provide a partial solution. Under Rule 1006 of the federal rules of bankruptcy procedure, a debtor may apply to pay the filing fee in as many as four installments, rather than cough up the full $306 at the moment of filing.

Debtors can obtain this relief by filling out Form 3a and submitting it with their petition for approval.

With the Chapter 7 fee set at the bizarre number of $306, it is not practical to make equal installments when paying in installments. An arrangement that may work is to pay $81 with the filing, and propose three equal payments of $75 thereafter.

In any event, all the installments must be made within 120 days of filing, or the case will be dismissed.

Attorneys and debtors should be aware that there is a mistake on the Massachusetts bankruptcy court’s FAQ web page concerning installment payments. The FAQ says that “The application must state that the applicant has neither paid any money nor transferred any property to an attorney for services in connection with the case.”

This is no longer true, as the rule was changed in 2008 to allow debtors to pay their bankruptcy lawyers before filing. The current rule simply prohibits any more money from changing hands between the date of filing and the time when the debtor’s filing fee is fully paid; in a typical Chapter 7, smart lawyers get paid upfront, so this should not be an issue.

While the installment plan is technically available for Chapter 13 cases too, it is rarely used there, since that chapter requires that debtors have access to enough cash that they can make plan payments. If a debtor can not come up with even $281 (the Chapter 13 filing fee), it sort of spells doom for the entire notion of using that chapter from the outset.

 

By Doug Beaton

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