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 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.
Let’s go through all of the costs to file Chapter 7 bankruptcy. To estimate the costs for YOUR used case, you may want to take our Chapter 7 means test calculator.
1. Bankruptcy Attorneys’ Fees
The average attorneys’ fee for a Chapter 7 bankruptcy attorney is between $950 and $1,500 for consumer bankruptcy. A business Chapter 7 could cost between $2,000 and $5,000. Attorneys’ fees for bankruptcy cases depend on a variety of factors, including where the attorney is located, the attorney’s experience level, and the complexity of the bankruptcy case.
Many Chapter 7 bankruptcy lawyers offer payment plans so that you can afford to hire a bankruptcy lawyer. They also offer free consultations. You can meet with several Chapter 7 bankruptcy lawyers to find one that offers a payment plan and the fee that you can afford.
You are not required to hire a bankruptcy attorney to help you with a Chapter 7 filing. While there are many advantages of hiring a bankruptcy attorney to advise you about your legal rights and options, you can file bankruptcy without an attorney.
2. Credit Counseling Fees
Consumer debtors must complete a credit counseling course before filing bankruptcy. The course must be completed within 180 days before filing the Chapter 7 bankruptcy petition. Courses are available online, in person, and by telephone. However, you must use a company that has been approved by the United States Trustee’s Office. In most cases, the course can be completed online in about 90 minutes to an hour.
On Average, most companies charge between $10 and $50 for the credit counseling course. You can shop around from the list of approved companies to find a company that has the lowest rate. All courses must contain the same basic information.
If you meet specific income requirements, the fee for the credit counseling course may be waived. Each company has a process for requesting a fee waiver.
3. Credit Report Fees
You must list all your creditors on your bankruptcy forms. It is generally a good idea to review your credit reports to make sure that all creditors and collection agencies are included in your bankruptcy forms. You can obtain free copies of your credit reports from all three major credit reporting agencies every 12 months.
4. Bankruptcy Court Filing Fee
The bankruptcy court charges a filing fee. It is standard in all Chapter 7 bankruptcy cases, regardless of the size of the case or whether the case is an individual, joint, or business case. The total filing fee for a Chapter 7 bankruptcy case is $335, which includes a $75 administrative fee and a $15 fee for the Chapter 7 Trustee.
You can apply to have the Chapter 7 bankruptcy filing fee waived. The waiver of the bankruptcy fee is based on your income. Your household income must be less than 150 percent of the official poverty line at the time of filing.
If you do not meet the income requirements to waive the Chapter 7 filing fee, you may request an installment schedule. You must file a form requesting to pay the filing fee in installments. If the bankruptcy court approves the installment request, you may be able to pay the filing fee in four installments. The filing fee must be paid in full before you can receive your bankruptcy discharge.
5. Debtor Education Course
After you file your Chapter 7 petition, you must complete a second bankruptcy course. The debtor education course must also be taken from an approved company. Most companies offer courses online, in-person, and by telephone. If you do not complete the debtor education course and file your certificate of completion before the deadline, the court can deny your bankruptcy discharge.
As with the credit counseling courses, the fees for the debtor education course vary from around $10 to $50. Many companies offer both courses at a discount if you use the same company to complete both courses.
You may also waive the fee for the debtor education course if your income is below a certain level. Check with the company about its procedure for requesting a fee waiver.
6. Miscellaneous Costs
There could be miscellaneous costs associated with filing Chapter 7. For example, if you file your Chapter 7 case without an attorney, you are responsible for the copy costs and postage costs when you are required to send documents to your creditors. You may also incur travel expenses and parking fees when you go to the courthouse to file your bankruptcy forms or postage if you mail the forms.
You will need to attend at least one bankruptcy hearing, the 341 First Meeting of Creditors. Depending on where you live, the mileage to the hearing location could be significant. Also, you may have parking fees during the hearing.
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 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 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.