If you’re considering bankruptcy as an option for debt relief, you have probably thought about the costs involved. The total cost of filing for bankruptcy varies based on multiple factors, including the specific type of bankruptcy you elect to file, your jurisdiction (where you’re located in the country), and the quality and experience of the bankruptcy attorney you hire to help you to name just a few.
There are certain types of fees that are standard and must be paid in most cases, although the amount may vary depending on type of bankruptcy you choose. These standard fees include the filing fee and your credit counseling class. The filing fees will cost between $300 and $340 and the credit counseling class is between $10 and $30.
If you hire an attorney, your attorney's fees will be paid prior to filing you case and most attorneys offer some type of payment plans for bankruptcy. Your attorney’s fee will depend on certain factors, including the attorney’s experience, your jurisdiction, and the quality and experience of the bankruptcy law firm you hire. Typically, attorney’s fees range between $1500 and $5500 depending on which chapter you file and the level of complexity of your case.
Understanding the Costs of Bankruptcy
It can be helpful to have a clear idea about what you’ll be required to pay if you apply for bankruptcy, and to understand what each the different costs are for. Below is a brief explanation of the different charges that you’ll pay.
1) Filing Fees
The first cost is the filing fee, usually charged by the federal government.
● Chapter 7 Bankruptcy: This bankruptcy chapter is ideal for eliminating unsecured debt quickly and without repayment, but most of the time you’re required to prove that you qualify for Chapter 7. Currently, the filing fee is $338.
● Chapter 13 Bankruptcy: This type of bankruptcy is available to anyone with predictable, regular income and it allows you to restructure certain debt, pay off other debt, make income-based monthly payments to your unsecured creditors for three to five years, and have any unpaid unsecured debt eliminated with a bankruptcy discharge after you successfully complete your repayment plan. The filing fee for Chapter 13 is currently $313.
2) Attorney Fees
It’s generally advisable to consult a lawyer to ensure that the bankruptcy procedure is completed properly and so you can file bankruptcy without significant difficulties. The price of legal advice depends on various factors, such as your circumstances and geographic location.
● Chapter 7 Attorney Fees: Informed clients can be charged as low as $1,500 or as high as $4,500. However, what must be highlighted is that the cost you will incur will depend on the nature of your case and the level of complexity involved.
● Chapter 13 Attorney Fees: The standard fee in Central Texas for filing Chapter 13 is between $4,500-$4,800, although it’s much more common for additional fees to come up along the way with a Chapter 13.
Paying these fees in installments through a payment plan is possible, particularly for a Chapter 7. On the other hand, a Chapter 13 usually requires an initial payment and the remainder of the balance owed for attorney’s fees is put into the repayment plan.
It’s important to remember that in certain situations there could be further costs, which may be the case when your attorney must apply for other legal procedures or address additional issues in your case.
3) Credit Counseling Course
Everyone is required to complete a credit counseling class prior to filing bankruptcy. This class can be taken online or on the phone, and it helps folks assess their financial needs by recording your average monthly income and expenses and creating a budget.
● Cost: Some nonprofit organizations have a policy that the first session is always offered at a low charge or for free. There is a way of getting an agency nearby through some organizations, such as the National Foundation for Credit Counseling or the Council of Accreditation (COA). However, the credit counseling fee is typically between $10 and $30. Even if you choose to enter a debt management plan with the nonprofit after counseling, you should be ready to pay some fees.
4) Financial Management Course
Like the requirement to credit counseling prior to filing, everyone must also take a financial management class after filing. This course typically costs between $10 and $30.
5) Additional Costs
If you file for Chapter 13 then you'll have to pay an administrative fee to the trustee who oversees the repayment plan.
● Trustee Commission: The trustee is usually paid approximately 10% of your monthly payout.
Although the costs for filing bankruptcy can be challenging to come up with, it’s important to think about the amount of debt you can get rid of by filing. It’s very common for folks to get rid of debt that amounts to between ten to thirty times what they paid to file bankruptcy.
Long-Term Costs of Bankruptcy
Bankruptcy stays on your credit report for ten years when you file Chapter 7, and it stays on your credit report for seven years when you file Chapter 13. That’s not the whole story though. While it’s true that bankruptcy will remain on your credit report, after the debt is removed you’ll have an opportunity to begin building good credit very soon after the debt is discharged.
Here’s a quick example of what’s possible after filing bankruptcy. If you want to buy a home after filing bankruptcy you can:
• You can qualify for an FHA or VA mortgage two years after your bankruptcy discharge;
• You can qualify for a USDA loan three years after your discharge; and
• You can qualify for a conventional mortgage four years after your debt is discharged in bankruptcy
Focusing only on the long-term consequences of bankruptcy isn’t doing anyone any good. Yes, bankruptcy is going to be on your credit after you file and some lenders will look down their nose at it being there, but many won’t. Instead, most lenders are going to look to see what you’ve done since the debt was discharged. Have you used the discharge as an opportunity to go and demonstrate financial responsibility and build good credit? Many folks do just that and their credit bounces back in just a few years. The real question you should be asking yourself is whether you can reset your credit in just a few years without bankruptcy. If the answer to that question is “no” then filing bankruptcy is a better choice for you, your credit, and your financial future regardless whether I will be listed on your credit report.
Pros and Cons of Filing for Bankruptcy
Many folks are quick to mention the perceived disadvantages of filing bankruptcy, so much so that it can be difficult sometimes to remember the advantages of bankruptcy. Below is an overview of both the advantages and disadvantages.
Pros of Bankruptcy
● Getting a fresh start financially.
● Removing significant debt from your credit report
● Zeroing out your “credit utilization,” which makes up about a third of your credit score (you want this to be thirty percent or less typically)
● Getting an opportunity to begin building good credit within one to two years after filing.
● Shielding against creditors and all collection activity via “automatic stay”.
● Debt relief, as some of it will be erased totally.
● Debt reduction through elimination or repayment with reduced installments.
● Preventing one's home from being repossessed.
● Avoiding car repossession events.
● Pausing or suspending legal cases and other related legal proceedings against you.
Cons of Bankruptcy
● Coming up with the initial payment.
● Potentially sacrificing some of your personal items, although this is much rarer than most folks expect.
● The government's debts will still be expected to be paid in most cases, although with the elimination of other debts this is more feasible.
● It will have a negative impact on your credit score in the short-term, although most of the time folks already have bad credit or are on a path to having bad credit.
● You may need to wait a few years after filing before you get good interest rates for future credit or loans.
● Any bankruptcy case is reported to the credit bureaus and takes 7 to 10 years before being deleted.
Conclusion
You’ll be expected to pay a filing fee, credit counseling fee, financial management fee, and attorney’s fees if you hire a lawyer to help you file bankruptcy. While these costs can seem high, most bankruptcy lawyers offer payment plans to make filing a possibility for almost anyone. These expenses also tend to be significantly less than the total amount of debt that you’ll have discharged. In addition to the expenses associated with filing bankruptcy, It’s important to consider the pros and cons of filing bankruptcy by speaking to a qualified bankruptcy lawyer to learn how bankruptcy will impact you specifically. Remember, it’s often the case that when bankruptcy makes sense, it’s the most responsible financial decision you can make to help you achieve a healthier financial future.
Frequently Asked Questions
What is the most inexpensive method to declare bankruptcy?
Chapter 7 bankruptcy is the cheapest and fastest way to get out debt—no questions about it. In most cases with Chapter 7 Bankruptcy, nobody looses anything by filing Chapter 7. The Texas bankruptcy exemptions allow you to protect your home, car(s), most retirement savings and personal property.
Am I eligible to get any help with initial bankruptcy fees?
Most bankruptcy lawyers allow their clients to pay with a payment plan, making paying for bankruptcy much more manageable and within reach for most folks.
What exactly is Bankruptcy Credit Counseling?
Credit counseling is mandatory for everyone filing for bankruptcy. It must be completed within 180 days before the filing of the case. Counseling is of two types. The credit counseling course helps folks examine their financial situation by fully documenting their monthly income and expenses in order to come up with a budget to use after you file bankruptcy.
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