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Bankruptcy laws in the United States provide a guide on how individuals going through rough financial times can achieve some relief. However, the process itself will likely end up costing you more cash, which is ironic considering that financial constraints are the reason why people file for bankruptcy. Bankruptcy in the U.S is covered under Chapter 7 and Chapter 13 of the Bankruptcy laws.

What is the difference between Chapter 7 and Chapter 13 bankruptcy?

Chapter 7 bankruptcy mainly focuses on liquidation, and it eliminates a huge chunk of your unsecured debt. Some of those debts include medical debts and credit card debts which you do not need to pay once they are eliminated. Chapter 13 bankruptcy is for those that have filed for bankruptcy, but they still have a significant amount of cash every month to pay off some of their debt.

How much does it cost to file Chapter 7 Bankruptcy?

Anyone filing bankruptcy under Chapter 7 bankruptcy will pay a $335 which is charged as a filing fee. These individuals should also expect an additional charge between $15 and $20 as the fee to be paid to the Bankruptcy Trustee. The attorney fee ranges from $500 to around $3,500. It means the total cost of filing for bankruptcy under Chapter 7 will range from $835 to $3,835.

How much does it cost to file a Chapter 13 Bankruptcy?

The filing fee for bankruptcy under Chapter 13 is $310 while the attorney fee range from $1,500 to around $6,000. The total cost should thus be anywhere between $1,810 and $6,310. Note that the filing fees are the same in all states. However, the attorney charges might be different depending on the state where one files bankruptcy.

It’s important to keep in mind there may be other miscellaneous costs incurred during the process for both Chapter 7 and Chapter 13 Bankruptcy. Such expenses will likely be between $300 and $400.  You can, however, lower your costs by finding a pro bono lawyer who will handle your case for free. In case a pro bono legal rep is not an alternative, you can consider creating a payment plan that will help you offset the bills without much of a hassle.

Do I have enough debt to file bankruptcy?

A common question is whether you may have enough debt to file bankruptcy. Unlike what most people would think, there is no minimum debt threshold that one has to achieve to qualify for a bankruptcy filing. You should consider your financial condition so that you can determine whether you should file for bankruptcy.   

There is no minimum debt amount that warrants a bankruptcy filing. Although, it is important to keep in mind the amount of debt you hold is a critical determinant in the decision to file for bankruptcy. The decision to file or not to file for bankruptcy should depend on factors such as;

  • The creditors’ desire to continue doing business with you.
  • Your ability to clear your debt during bankruptcy.
  • The ability to repay debt outside bankruptcy.
  • Your financial situation and other underlying facts that may influence the decision.

There is a Chapter 13 debt limit that anyone should consider, especially when planning to file for Bankruptcy under Chapter 13. As of April 1, 2019, an individual is not allowed to have unsecured debt of more than $419,275 (up from $394,725). Also, secured debts must not exceed $1,257,850 (up from $1,184,200) while filing Chapter 13 bankruptcy.

What are alternatives to filing for bankruptcy?

One does not necessarily have to file for bankruptcy. Some of the alternatives include debt management, debt settlement, and looking for additional sources of income while at the same time reducing your consumption.

Debt Management

Debt management involves individuals with piling debt to come up with a plan through which they can negotiate a discounted amount that they owe to creditors. Consumers can also negotiate lower monthly settlements. Non-profit companies commonly use this kind of debt management. Individuals who want to use this approach should consider securing the services of a credit counselor to create a suitable debt management plan There are a few tips that one can follow when going through a debt management program. Also, this process is mainly handled by a debt management firm.

  • The debt management firm creates an account for the applicant to compile their payments into a singlemonthly payment. Then, this payment is distributed to the creditors.
  • Notify the creditors that the debt management firm will be their primary contact.
  • Negotiate interest rates and other charges with creditors, so that it fits your current monthly payment plan depending on what you can afford.
  • The debt management firm should confirm whether the employee is pleased with the negotiated payment plan.
  • Every payment to creditors should be carefully managed until the debt is cleared.

Debt Settlement

Debt settlement involves the use of a third party to negotiate a lower debt amount if the current debt level is too big for you to pay. It aims to lower debt to more manageable levels. Especially when the debt grows to an amount that you cannot afford. Debt settlement companies handle the process through the following steps. There are many pros and cons to debt settlement, so tread lightly.

  • They create an escrow bank account for the applicant, so the different payments can be consolidated and handled through the account.
  • Creditors should be notified that the debt settlement firm will be the main point of contact moving forward.
  • The debt settlement firm negotiates with the creditors to achieve the lowest rate possible.
  • The firm consults the debtor to secure permission on whether to accept the agreed-upon settlement plan.
  • The company manages the debt until it is completely cleared.

Should I file for bankruptcy or pursue an alternative?

Before you decide to file for bankruptcy, it is vital to conduct a comprehensive review of your financial situation. It is also helpful to evaluate your other available options. It will allow you to have a clear view of how things look, as well as the potential alternatives. Each situation has different factors that individuals or companies should consider before deciding whether or not to file for bankruptcy. We built a comprehensive Chapter 7 calculator to see whether you qualify for a Chapter 7 bankruptcy. We also constructed a Chapter 13 calculator to estimate your plan payment.

Post Author: Ascend

Group of guest writers and industry experts who have specific expertise in Chapter 13 bankruptcy, Chapter 7 bankruptcy, debt relief, debt settlement, and debt payoff.

10 Replies to “What are the Costs of Filing for Bankruptcy? 3 Things to Know”

  1. If I had to file for bankruptcy, I would for sure take everything into consideration. As you said here, you have to have a certain amount of debt to file for it. Mine isn’t all that much but It’s been worse. I’ll for sure keep your tips in mind if that day ever comes.

  2. My dad’s business is not doing good financially ever since his investors pulled out, that’s why he’s planning to file for bankruptcy. I never knew that filing chapter 7 can help eliminate huge amounts of unsecured debt. I’m glad you shared this by the way; I’ll make sure to remind my father to prepare $15 and $20 for additional charges, just in case he’ll choose to file for chapter 7 bankruptcy.

  3. Great tip about creating an escrow bank account for the applicant. My sister lost her business because of the shutdown and needs to declare bankruptcy. I’ll have to hire a lawyer for her so that she can set up a 10-year financial plan.

  4. My business hasn’t been performing well due to this pandemic, which is why I’ve decided to start looking for a bankruptcy attorney that may help with this. Well, thank you for elaborating here that there could be other miscellaneous costs incurred during the process for both chapters. Of course, I’ll also keep in mind to determine whether my debt reached the minimum amount before filing for bankruptcy.

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