Why Are Bankruptcies So Expensive?

A person files for bankruptcy when they can no longer keep up with his/her living expenses and continue paying the minimum payments on the debt they owe. When this happens, the individual can file for bankruptcy, which is a legal process where the court oversees the financial situation of the individual to help them pay off their debts.

What Costs Are Associated With Bankruptcies?

There are many costs associated with filing for bankruptcy. It's important to understand these costs as cost may be a common reason Chapter 13 bankruptcies end in dismissal.  It may feel counterintuitive to spend more money in an effort to get out of debt. However, filing for bankruptcy can be one of the best decisions when you are drowning in debt. Some of the changes can differ based on what type of bankruptcy you file for. Here are some of the fees you run into when filing for bankruptcy:

  • Court Fees: This fee is one that changes depending on which form of bankruptcy you file for. If you file for Chapter 7 bankruptcy, the court fees will be $338. If you are filing for Chapter 13 bankruptcy, the court fees will be $310. There is also a refiling charge that ranges from $235-260 if you happen to be refiling for either Chapter. 
  • Attorney Fees: These costs will also vary based on where you live, who you decide to work with, and how complex your case is. For example, the cost to file bankruptcy in California may be different than the cost to file bankruptcy in Texas. For Chapter 7 bankruptcies, which tend to only take around 6 months, the average attorney cost is $1,450. The fees can range from $1,000 up to $1,750, depending on your case. For Chapter 13 bankruptcies, there is a wider range. Though the average cost is around $3,000, your attorney fees can range from $2,000 up to $5,000.  
  • Debt Payments: You will create a debt repayment schedule if you are filing for Chapter 13 bankruptcy. Your debt repayment plan outlines how much you will repay your creditors month to month. This payment will depend on a number of factors that are unique to your situation.
  • Credit Counseling & Debt Management Courses: Before you are able to file for bankruptcy, you have to take two credit counseling courses. You must take these courses through approved agencies. The costs vary greatly, but for the most part, they are affordable. While some courses you can find for free, there are others that can cost up to $50. It depends on your location and what options are available to you. 

When Are These Fees Due?

These costs can feel overwhelming, especially if you are already in a stressful financial situation. Knowing when you need to pay these costs can help you figure out a way to schedule your payments.

  • Court Fees: Court fees are due at the time of your filing. Your case will be rejected unless you submit your payment. You can also make a payment plan to pay for your court fees over an extended period of time. When you file for bankruptcy, you can apply to pay the court fees in installments. If you are doing this, you must pay 50% of the fees within 7 days of filing. You then can make a payment plan that best suits you. There are limitations to the installment plan. You can only make up to four installments, and you have to make all payments within 120 days of filing. If you fail to do this, your case may be dismissed. 
  • Attorney Fees: The attorney you work with will decide when and how they get paid. Sometimes, attorneys delay all payments until the end of the case, though this may be rare. In certain cases, mostly seen in Chapter 7 bankruptcies, attorneys may require up front payment. It is most common, however, for attorneys to have payment plans that allow you to pay them out over time while they work with your case. 
  • Debt Payments: If you have filed for a Chapter 7 bankruptcy, then you will not have to worry about most debt payments during the process. Your bank trustee will be in charge of liquidating your assets and settling debts directly with your creditors. If you filed for Chapter 13 bankruptcy, however, there is a monthly payment plan that you have to keep up with. The court may dismiss your case if you miss a single payment. 

There are sometimes options to create a payment plan, depending on the attorney you work with and your eligibility in the court. 

Are There Any Exceptions From These Fees?

While these fees may seem overwhelming, they can help you get to a clean slate. This allows you to begin building a financially stable future. However, the government recognizes that, in some cases, it can be incredibly difficult to come up with the funds to pay the fees. Because of this, there is an exception for the court fees. If you make less than 150% of the official poverty line that applies to the size of your household, there is a waiver you can fill out that will exempt you from the court fees. This is only applicable to individuals filing for Chapter 7 bankruptcy.

Another way to cut costs when filing for bankruptcy is to look for agencies that offer their credit counseling courses for free. You may have to take online courses to find free courses, but sometimes agencies will waive their fees if you are able to prove you are unable to pay for the courses. 

If you are an individual with a disability, or you are an older individual, there is also a chance for reduced costs. Attorneys will typically take into consideration the condition of the individual when drafting their charges. Make sure you communicate your disability or age with your attorney to see if they offer any financial assistance or cut costs. You can also look for attorneys that discount their charges for certain situations. Be sure to do your research when looking for a bankruptcy attorney. There may even be a chance that your local bar association or legal aid office offers reduced cost representation or assistance.

Should I Save Money By Filing For Bankruptcy Without an Attorney?

The overwhelming consensus on this is no, you should not try to file for bankruptcy without an attorney. Bankruptcy cases are always more complex than they seem. Having representation that understands the ins and outs of the laws of your jurisdiction is well worth the cost. However, if you are set on filing for bankruptcy as cheaply as possible, the attorney fee is the biggest cost that isn’t legally required. In the long run, the attorney is almost always worth the cost. They can help protect your property and assets from liquidation, get your payments lower than they would be, and make sure you are getting the best deal to help set you up for success. And, at the end of everything, there’s a chance your attorney pays for themselves with the money they save you. 

Conclusion

Make sure you understand the costs associated with filing for bankruptcy before you get started. Ignoring these bankruptcy expenses may cause problems down the road. While the costs for bankruptcy may feel like a lot, in the long-run, they can definitely be worth it.

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