Are you considering bankruptcy? Depending on the complexity of your case and the type of bankruptcy, filing may cost as low as a couple of hundred dollars or up into the thousands. Let’s take a look at the cost of bankruptcy, which type of bankruptcy to file (Chapter 7, Chapter 11, and Chapter 13), and how to pay for it.
What are the costs of bankruptcy?
You may be asking “how can I file bankruptcy with no money”? One of the first options to consider when filing for bankruptcy is whether you qualify for bankruptcy discharge.
Bankruptcy may impact the different types of debt you have, such as unsecured debts like credit card debts, back taxes, or student loans, with differing results.
While attempting to calculate the overall cost of bankruptcy, there are several individual costs to consider. Let’s take a look at some of the immediate costs of bankruptcy, followed by some costs you may not have considered.
What are the Initial Costs of Filing Bankruptcy?
There are two primary costs when filing for bankruptcy: court filing fees and attorney fees. When estimating the cost, it is important to note that filing fees remain the same throughout the United States, whereas attorney fees will greatly depend upon the individual attorney, where they are located, and whether your case is straightforward or complex.
Which Type of Bankruptcy Should You File?
You have the opportunity to file for Chapter 7, Chapter 11, or Chapter 13 bankruptcy. Chapter 7 and Chapter 13 are generally the best options to consider for personal bankruptcy as Chapter 11 is usually used by businesses to reorganize and repay their debts. Chapter 11 is also significantly more expensive than Chapter 7 and Chapter 13.
Chapter 7 filing will allow most, if not all of your debts to be forgiven while Chapter 13 will take into account your varying debts and organize them into a repayment plan. Chapter 13 filing can also help reduce the overall amount you owe, as well as allow you to potentially keep certain assets such as your house or car.
With Chapter 13 bankruptcy, your local court will have a threshold for reasonable attorneys fees. While they will do due diligence when reviewing the attorney fees, you should do your research before hiring an attorney. Fees that fall below the court’s threshold can indicate a good start when looking at hiring an attorney to assist with filing your bankruptcy petition and representing you in court.
So which option is best for you? That all depends on your financial state. If you have the financial ability to organize a repayment plan to include any fees related to filing, Chapter 13 is the option for you.
If you are unable to follow through with a repayment plan, Chapter 7 is the option for you. It is important to note that your attorney may require payment before moving forward with your case.
According to Debt.org, the estimated fees for each type of bankruptcy are as follows:
- Chapter 7: Filing Fees ($338) + Estimated Attorney Fees ($1,450) = $1,788
- Chapter 11: Filing Fees ($1,738) + Estimated Attorney Fees ($18,000) = $19,738
- Chapter 13: Filing Fees ($313) + Estimated Attorney Fees ($3,000) = $3,313
While attorney fees make up the bulk of your estimated costs, the long-term benefit is proper filing and advocacy for your bankruptcy case and the peace of mind that will come from having someone walk with you through the process.
There are two required credit counseling courses when filing for either Chapter 7 or Chapter 13 bankruptcy. The agencies that provide these courses generally charge up to $50 in fees, however, if you are unable to pay the fees your local court may require the agency to provide you with a reduced rate or even for free.
The Long-Term Cost of Filing Bankruptcy
It is important to consider the impact that bankruptcy can have on your credit score. It will cause a significant drop, making it hard to qualify for loans and other credit for several years. This may be considered a long-term cost of bankruptcy. However, keep in mind that as time goes on you will have the opportunity to rebuild your credit score.
Ways to Pay for Bankruptcy
Take a Look at Your Current Cash Flow
How can you adjust your current spending habits to save some money for bankruptcy filing costs? If you are confident you will pursue a Chapter 7 filing, suspending payments on unsecured debts like credit cards makes the best sense as these types of debts will be taken care of by your case.
You can also consider selling current assets and finding ways to make money on the side either through a part-time job or a side hustle. Friends and family may also be a good resource if you feel it is appropriate to seek help from them.
Discuss a Payment Plan with Your Attorney
Some attorneys may provide payment plans of different term lengths for their fees, but most will generally require payments to be completed before filing a Chapter 7 bankruptcy since you would not be required to pay them post-filing. However, with a Chapter 13 bankruptcy filing they may allow their fees to be rolled into the repayment plan you organize that will be implemented post-filing.
Your attorney can also work with your local court to discuss a payment plan (up to four payments) for the bankruptcy filing fee. If you are filing for Chapter 7, your attorney may be able to assist you with applying for a waiver of court filing fees.
What About Pro Bono or Do-It-Yourself Options?
You can consider applying for assistance from a pro bono service if your income is at the appropriate level. However, many pro bono services have a larger caseload than they can handle and may require you to get on a waitlist. Similarly, you do have the option to hire a petition preparer to help you fill out your paperwork for a lower fee than attorney fees.
Remember the importance of quality. You can attempt to go a cheaper route when filing for bankruptcy, however, you get what you pay for in these cases. There is a long list of benefits of hiring an attorney for your bankruptcy case, including legal advice and the ability to interpret court language and requirements when filing, handling communication attempts by debt collectors (saving you stress and peace of mind), assisting with creating a repayment plan, advocating on your behalf with the courts, etc.
While it is important to be smart with how you spend your money on your case, one simple error on your paperwork can cause your entire case to be dismissed by the courts. Save yourself the risk of further heartache and hire an attorney who can give you the legal aid you need.
Bottom Line: Hire the Best Bankruptcy Lawyer for Your Case
The crucial first step to take in figuring out your bankruptcy costs is to seek solid legal advice. Schedule a consultation with one of our experienced attorneys. During your consultation, we will provide an evaluation to see if bankruptcy is right for you.
If bankruptcy is deemed the appropriate step for a healthier financial future for you, we will assist you with creating the best plan for your financial situation. Our lawyers can provide you with much-needed advice, support, and compassion as you walk through this season to a better financial future.