Thinking of filing for bankruptcy? If yes, then you would love to know bankruptcy cost.
Everyone thinking of filing for bankruptcy would think of the costs associated with the whole process first.
The paradox of the whole thing is that even the process of declaring that you can no longer afford to pay your debts needs you to pay for it.
But, how much will bankruptcy cost you?
In this article, I will guide you through the whole process and the costs associated with it.
You will learn about credit counselling. Personal finance course you will have to take. Attorney vs. self-representation option. Filing fees and how to raise money for the whole process when your financial situation is dire.
1. Personal finance management course
In line with the process of filing for bankruptcy, courts will require you take personal finance management course from an approved provider. It is mandatory.
The course will equip you with the necessary money management skills to help you through the financial distress period.
Often, these courses cost in the boundaries of $100 and still add up to the bankruptcy cost. Most providers, however, charge 50 dollars.
The court will give you a list of providers in your location.
You should therefore be able to compare different providers and choose one that best fits your needs and budget.
In any case that you cannot afford to pay for the course, you will have two options:
(1) You will have to negotiate with the course provider. You are free to ask for a payment plan, discount or even a fee waiver.
(2) You can plead with the court for a waiver. If your reasons merit, a judge may decide to write off your costs to attend the course or ask you to pay later within the stipulated timelines set by the judge.
However, for you to get a complete waiver guaranteed by the courts, you will have to prove that your household income is at or below the poverty line.
2. Credit counselling
Before you file for bankruptcy, you are required to receive credit counselling first. This has to be done by a qualified entity.
The department of justice has a list of all approved counselling services providers. In their website, you can check how much it will cost you in your area.
Most often, the cost is favourable and often below $100 per session, which adds up to your bankruptcy cost.
In case, you cannot afford this amount, you can ask for a waiver.
The court will however have to certify that your household income is below the poverty line. Or, you are in dire financial distress.
4. Bankruptcy filing at the Court
Cost: $310 – $335
Bankruptcy filing fees are set by the federal courts. They only differ according to the type of bankruptcy you are filing for.
Chapter 13 bankruptcy will cost you less in filing costs. At the time of writing this article, it stood at $310.
On the other hand, chapter 7 bankruptcy cost is slightly steeper, standing at $335.
However, these are the basic filing fees. There are instances when you incur additional costs while filing your case, in addition to the filing fee.
For example, you get charged an extra 35 dollars to convert your bankruptcy case from chapter 13 to chapter 7.
Also, if you are reopening bankruptcy case, you will have to incur other charges as stipulated by the law or set by the federal court.
The good part is, all these charges are standardized and available to the public. There are no hidden costs
5. Bankruptcy attorney
Cost: $1500 on average
The bankruptcy attorney fee is the largest cost you will incur in this whole process.
It, however, varies according to the location, experience of the attorney and complexity of the filing process.
An experienced attorney from a reputable law firm will charge a higher rate compared to fresh graduate with little experience.
Similarly, attorneys from big busy cities will command a higher rate unlike their counterparts in smaller cities or rural areas.
You will not need to worry about how much you will be charged. Most of bankruptcy attorney fees are public record. And, you can access the records anywhere and at any time.
Most of bankruptcy attorney offer free consultation services and therefore you can schedule for one at your convenience.
In the process of gauging how much you will spend for the bankruptcy process, head to federal PACER website and check what an attorney will charge in your area.
Use of an attorney vs. self representation
The law gives you two options in representation when filing for bankruptcy.
You can either represent yourself and do everything by yourself or use the services of an attorney.
Whichever routes you choose, there are advantages and disadvantages it carries. It will also impacts the overall bankruptcy cost and chances of winning a favourable discharge.
If you are conflicted, I would suggest you go the attorney representation way. Why do I say this?
Historically, pro se (self-representation) cases don’t succeed. A whopping 55% of them get thrown out of the courts without a discharge (debt is forgiven). Therefore, it is not the best route for anyone filing for bankruptcy.
However, data shows that bankruptcy cases filed by an attorney have had a success rate of over 95%. This informs you the need to have an attorney file the case for you.
It might be costly for a financially distressed individual but the $1500 is a small cost to shoulders if you really want a favourable discharge.
An attorney will handle all you’re the filing of your case in the right way.
Also, they will try to get you as many exemptions as possible and protect your assets from the eyes of a trustee to the best of their abilities.
He/she stands the highest chance to secure you an automatic stay. (Your debtors are stopped from collecting their debts from you)
6. No look fees
What if attorneys fee skyrockets beyond the amount you did not anticipate and therefore cannot afford?
This is where the no-look fee capping comes to your aid.
A judge will cap the maximum amount an attorney can charge you for all the legal representation, irrespective of how protracted the case may become.
Similarly, it also protects the attorney by prescribing the minimum you can pay for each type of bankruptcy filed. It is a two way protective measure.
So, at any given point you feel you are overcharged, just know you are protected by the no-look fees capping.
At any given point you feel the costs are way above your budget, or an attorney raises the fees beyond agreed range, you can ask a judge to do the review.
If successful, the judge will review the charges downwards in line with the no-look fee guidelines set by the court.
7. Miscellaneous and unexpected fees
There are chances some unexpected cost will creep in to your overall budget.
The case might be challenged by one of your lenders prolonging it. The attorney will expect you pay more for his services and so will other fees and charges add up to your budget.
You should therefore put some money a side for such just-in-case scenarios, which are rare.
Bankruptcy cost Summary
Here is a summary table of all costs you might expect.
|Chapter 7 filing fee||$335|
|Chapter 13 filing fee||$310|
|Conversion from chapter 7 to 13||$0|
|Conversion from chapter 13 to 7||$25|
|Personal finance management course||$100|
|Credit management counselling||$50|
|Filing chapter 7 (self)||$350|
|Filing chapter 13 (self)||$450|
|Filing chapter 7 (attorney)||$1,500 – $3,000|
|Filing chapter 13 (attorney)||$3,000 – $4000|
What if you cannot foot in bankruptcy cost? Here are the ways to raise money to cover the cost of the whole process.
How to raise bankruptcy filing fee
You might not behaving enough cash in your bank account to cover the process of filing bankruptcy. What do you do in times like these?
Here are some of the ways you can use to raise the money or cover the associated costs.
1. Represent yourself
You can represent yourself at the court of law.
If you cannot raise enough to cater for an attorney, the law allows an individual to present his or her case before the judge in a court of law.
2. You can negotiate
You can negotiate with your attorney to lower the fee charged.
Most attorneys will accept to lower fees they charge you if your financial situation is in bad shape.
Some may opt to offer a favourable payment plan instead to give you enough time to pay in small bits.
3. Apply for waiver
You can successfully apply for a waiver for most of the fees discussed above. This will go a long way in lowering your overall bankruptcy cost and leave you with more money in your pocket.
However, there are guidelines for the waiver process too. Most often, a judge will require you to prove your household income to be at or below the federal poverty line.
Sometimes, by proving your financial situation is in dire distress, you might qualify for partial or complete waivers.
4. Seek free legal aid
If you cannot afford the legal fee, you can seek free legal representation.
The state offers free legal representation to those that cannot afford one.
Many societies, groups and charities provide these services free of charge to a specified group of people in the society.
Do your research and know if you can find one at your locality.
You can as well seek court’s help in this.
5. Set up a payment plan
When filing for both chapter 7 and chapter 13 bankruptcy and you don’t have enough money by your side, you can request to pay in instalments.
Most courts offer this as an option.
You are however supposed to clear the balance in 3 monthly instalments in most cases.
6. Seek help from family and friends
If you have close circles of friends and family members who are in a potion to help, you can decide to approach them. You have to determine if this is the right thing to do.
Most often, bankruptcies are taken to be a personal thing and therefore most people feel butterflies when it comes to involving other people. But if it is right for you, go for it. You can approach friends, family members and any other well-wishers for help.
If you have decided to file for bankruptcy, potential costs should not scare you.
There are many ways to raise the money to bridge the gap in bankruptcy cost.
You can also opt to seek a waiver from the court or a payment plan by your attorney.
Several organizations also provide free legal aid and advice for those in need of it. You can utilize this option and still arrive at the results: automatic stay and eventually a discharge.