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What are all of the Costs of Filing for Bankruptcy?

Bankruptcy laws in the United States are provided to 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 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 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 will have to part with $335 which is charged as a filing fee. Such 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, but the attorney charges might be different depending on the state where one files bankruptcy.

Also, keep in mind that 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?

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.   

Although there is no minimum debt amount that warrants a bankruptcy filing, keep in mind that 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.
  • Your ability to repay debt outside bankruptcy.
  • Your financial situation and other underlying facts that may influence the decision.

There are also some debt ceilings that anyone should consider, especially when planning to file for Bankruptcy under Chapter 13. As of April 1, 2019, one is not allowed to have unsecured debt more than $419,275 (up from $394,725) and secured debts more than $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 that you can consider include debt management, debt settlement, and looking for additional sources of income while at the same time reducing your consumption.

Debt management is where individuals with piling debt come up with a plan through which they can negotiate a discounted amount that they owe to creditors, or they can 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 process, and this is a process that is mainly handled by a debt management firm.

  • The debt management firm creates an account for the applicant to compile their payments into a single, which is then 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. Debt settlement 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?

Before you decide to file for bankruptcy, it is vital to carry out a comprehensive review of your financial situation, as well as 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 and a Chapter 13 calculator to estimate your plan payment.

Post Author: Ascend

Ascend is a group of guest writers and industry experts who are passionate about personal finance and about helping people get and stay out of debt.

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