It may be only 10 letters, but it’s definitely an intimidating word. Bankruptcy isn’t something anyone wants to declare, but sometimes it’s necessary when things go bad with your finances. But bankruptcy isn’t a free solution, and coughing up the cash can be a problem when you’re already drowning in debt. How much does it cost? Let’s take a look.
Debt relief. Without bankruptcy.
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How much does it cost to file for bankruptcy?
Bankruptcy can happen to a person or business that cannot repay its outstanding debts.
Don’t despair though, some actions can be done to save face, your business, and your sanity if this happens to you.
But it’s not cheap to file bankruptcy. For example, if you hire an attorney and you file Chapter 7 it will usually cost between $1,500 to $2,000.
For a Chapter 13 bankruptcy case, the average costs range from $3,000 to $3,500, depending on the complexity of your case.
Part of this total is from filing fees and other miscellaneous costs, which can run from $300 to $400. If you’re filing by yourself, you may not have to pay more than that. But the bankruptcy process is complicated. It’s worth taking the time to consult a law firm to discuss your financial situation.
Bankruptcy fees in general often include court filing fees, credit counseling course fees, and attorney fees if you opt to hire the service of a bankruptcy lawyer.
What is the difference between Chapter 7 and Chapter 13 bankruptcy?
Some people get confused between the types of bankruptcy – Chapter 7 and Chapter 13.
With either Chapter 7 or 13 filings, your unsecured debts or the ones not backed by collateral, such as medical and credit card bills are discharged — so you won’t have to pay them back which could alleviate much stress.
As for Chapter 7, those types of debts are removed with your filing’s court approval, which can take several months. Under Chapter 13, you will need to continue to make all necessary payments on balances throughout the court’s instructed repayment plan; afterward, the unsecured debts may be removed.
However, some debts might not be covered by Chapter 7 or Chapter 13 bankruptcy, including:
- Tax debts or government fees
- Auto loans
- Child support or alimony
- Student loans
How much are bankruptcy attorney fees to file Chapter 7?
While it’s not required to have a bankruptcy attorney, experts highly recommend it. Most charge a flat fee or some charge by the hour.
If you do decide to hire an attorney look for those who offer free consultations. Make sure this is offered in advance and you get it in writing before sitting down with the attorney/law firm. The advantage of a flat fee is you know the total cost before you hire the attorney and/or bankruptcy firm.
Chapter 7 bankruptcy court filing fees
The bankruptcy court filing fee for Chapter 7 bankruptcy is $338. You must pay it when the bankruptcy petition is filed unless the court grants you an exception.
Exception 1: Paying the fee in installments
If you get the go-ahead to pay in installments those payments will be made to the court. You get immediate protection from creditors without paying the entire fee at once. This becomes a plus if wage garnishment is involved. All installments must be paid within 120 days after filing.
If you plan to request an installment plan, it’s imperative to follow these steps before filing:
- Fill out the application to pay the filing fee in installments.
- Find out the total amount your specific bankruptcy district charges as a down payment as it can vary per district but counts toward the total fee.
Exception 2: Asking for a fee waiver
If your application for a fee waiver is granted, you won’t need to shell out money for a court filing fee.
To be eligible, your annual income must be below 150% of the poverty line for your state and household size. Note: it’s not a guarantee that if you meet the eligibility requirements you’ll be approved.
The bankruptcy court will decide if it’s appropriate in your case and a judge will review your income, expenses, and assets when making this decision. This is known as a means test.
If your fee waiver is denied, you’ll need to pay the filing fee in installments, but not always, so do have a plan B.
How long does Chapter 7 bankruptcy take?
It’s important to note that filing chapter 7 bankruptcy can’t happen overnight; be prepared for about four to six months to wait for a definitive answer.
How much does it cost to file Chapter 13 bankruptcy
The amount to file for Chapter 13 should you need to do so depends on a few factors:
- Attorney experience.
- Where you live as costs tend to be higher in urban and coastal areas.
Crucial factor: The court must approve the amount you pay your attorney. To simplify, many courts have “presumptive” fees they feel are reasonable. These will sometimes list the basic services that must be covered. For example, costs will be higher if your case is more complicated, like if you own a small business.
The fees also vary from state to state, location to location, or sometimes within districts of larger states.
- California: $3,300 to $5,000
- Texas: $3,000 to $3,825
- Virginia: $4,000 to $5,100
How much does a lawyer charge for Chapter 13 bankruptcy
In most cases when you hire an attorney, fees aren’t cheap so be prepared to open your wallet to pay a bankruptcy attorney or firm for services.
The average is about $3,000 and is usually higher than Chapter 7 fees because these cases are more complex. You won’t need to pay this amount in full before filing, as your attorney will become part of your bankruptcy journey. Additionally, the bankruptcy attorney can ask to be a priority creditor, which makes him/her more likely to accept a Chapter 13 case.
Chapter 13 bankruptcy court filing fees
The Chapter 13 bankruptcy filing fee is $313. Fee waivers are not available in Chapter 13 cases. Chapter 13 cases require that the filer have disposable income to make monthly plan payments to the trustee. Not being able to pay the filing fee makes it more difficult to make the court believe a Chapter 13 repayment plan is being offered in good faith.
However, you can ask the court to pay the filing fee in installments.
How long does Chapter 13 bankruptcy take?
Unlike Chapter 7 which takes months, Chapter 13 can take between 3 and 5 years depending on how long it takes for you to make your payments and a court to sign off on the installment plan.
What are the other costs of filing for bankruptcy
There are some fees that you’ll have to pay regardless of whether you decide to file Chapter 7 or Chapter 13.
Credit counseling fees
If you plan to file for either Chapter 7 or 13 you will be required to enroll in two educational courses. One credit counseling course is before filing, and a debtor education course is after.
On completion of both, you will get a credit counseling certificate known as a bankruptcy certificate. If you file for bankruptcy, you must obtain certificates at two stages of the process:
The courses are the same for Chapter 7 and Chapter 13 cases.
These costs are up to you to pay however, they can’t be more than $50 without a special exemption. If your income is less than 150% of the federal poverty guidelines, you can ask the course provider to waive the fee.
Miscellaneous other costs of filing for bankruptcy
When deciding in filing for Chapter 7 or Chapter 13 bankruptcy you will be paying for other additional costs besides the filing fees. Think printing costs, travel expenses, paperwork, long-distance phone calls, and cellular phone calls. The bankruptcy code is complicated. The bankruptcy petition is typically 60 pages. Depending on your district, you might have to print multiple copies and need more forms and other papers to pull together, and a single mistake could lead to all of these documents having to be resubmitted. Also, various copies of some documents may need to be submitted to the trustee. Other costs might include mailing documents and notices, fees to file amendments, travel and parking fees for proceedings, and lost wages.
What actually happens when you file for bankruptcy? Watch this for the details.
How to save money on bankruptcy costs
If you are unemployed, a low-wage earner, disabled or elderly, you might be able to use these low-cost bankruptcy options. If hiring an attorney cost more than you can afford, explore whether your local bar association or if a legal aid office can offer free or discounted help. Or ask a friend or family member for a loan.
If you can’t meet any of the above, think about representing yourself and either file the paperwork on your own or hire a bankruptcy petition preparer like a paralegal.
A paralegal is a professional trained to assist lawyers in various legal aspects. Paralegal duties range from clerical tasks to some legal work but note they can’t offer legal advice. They can help with paperwork and other miscellaneous assistance.
Do weigh all consequences if you opt to proceed without an attorney as you increase your risk of complications that could lead to your case being dismissed, which could leave you in a worse position.
And in a Chapter 7 case, you run a risk that your assets could be sold off if you’re not sure how bankruptcy exemptions work.
In a Chapter 13 case, you risk that your Chapter 13 plan is prepared incorrectly, making it unlikely a court will approve your plan.
How to pay for your bankruptcy
Filing for bankruptcy isn’t cheap and it requires money as well as giving your creditors a heads-up that you don’t have money. In the end, all these fees accumulate and add up fast.
If you can’t pay, there are a few options:
- Try to borrow money from family or friends, or colleagues.
- Get help from a free legal clinic or the Legal Aid Society. If your income is currently below the national average for the number of people in your household, you may qualify for free legal help. Most legal aid clinics and pro bono attorneys (private attorneys offering free legal help) serve those whose household income is less than 125 percent of the federally recognized poverty level. The exceptions are Alaska and Hawaii, which have higher income eligibility thresholds.
- Find a bankruptcy lawyer who will work pro bono.
- Check into the American Bankruptcy Institute’s attorney directory or state bar association.
- File under Chapter 13 instead of Chapter 7 as lawyers have some payment protection as creditors, and they’re more likely to take your case if you can’t pay the fees upfront.
- Use other tactics. For example, stop paying bills, take on a second job, sell some household items or even an extra car. Ask your boss about the possibility of working some overtime hours.
When should I not file for bankruptcy?
Bankruptcy isn’t right for every case, and it depends on every situation. Do you fall into one of these situations?
- Debts are not dischargeable in bankruptcy (for example: child support, some student loans, criminal fines, etc.)
- You haven’t filed your tax returns.
- You are considered “judgment proof” meaning your assets and income are exempt from collection.
- You have a lot of non-exempt property that you don’t want to lose.
- You haven’t addressed your underlying spending problems and are likely to end up back in debt.
The bottom line
When you’re already deeply in debt, the cost of filing for bankruptcy might seem overwhelming. But if you’re out of options it might be what you need to get your finances back on track.
A means test is a method for determining if the filer qualifies for financial assistance to obtain a service or good like welfare payments.
While a bankruptcy will stay on your credit report for seven or 10 years, it doesn’t mean your credit score can’t get better over time, but it will be difficult to qualify for new loans for a while. By the time you file for bankruptcy, your credit has likely been significantly damaged by credit card debt and late payments. Once your finances are in order, assess your credit score with a free credit report at annualcreditreport.com, check for any errors and look at ways you can improve your score. Paying all future bills on time will help. Try to keep the total debt on your credit cards low, because a low credit-utilization ratio will boost your score.
Bankruptcy shouldn’t have any impact on eligibility for federal student aid. However, if some of the student’s federal student loans are already in default and not included in a bankruptcy, the student won’t be able to obtain further federal student aid until the problem is resolved.
Non-dischargeable debt is a kind of debt that can’t be eliminated through a bankruptcy proceeding. Such debts include, but are not limited to, student loans; most federal, state, and local taxes; money borrowed on a credit card to pay those taxes; and child support and alimony.
In most cases, you will not lose your home or car during your bankruptcy case if your equity in the said property is fully exempt. If you don’t make your payments on that debt, you may face foreclosure and the creditor may be able to take and sell the home or the property, during or after the bankruptcy case.