What Does it Cost to File Bankruptcy?

The Cost of Filing Bankruptcy

You’re feeling broke, and your looking into bankruptcy.  You’re asking how did I get to here, and how much does it cost to file bankruptcy anyway? 

Too Broke to File Bankruptcy?

That’s an easy one, you’re broke, or close to it, and it doesn’t appear there’s relief on the horizon.  And you’re wondering how you’ll even pay to get help to begin with, because, well …. your broke.  Logic tells you it’s better to hire a professional in these complex situations, and in this case, a bankruptcy lawyer.  Frankly, you’re not even sure if bankruptcy is an option.  Aside from that, you ask yourself, “If I’m broke, how in the world would I pay a lawyer?”  What does it cost to file bankruptcy anyway?  Both are fair questions.

So What Does it Cost to File Bankruptcy?

The answer to this questions depends on several factors: your situation, your assets, your income, and the type of relief you’re ultimately looking for.  In many instances, the price difference between firms is fairly minimal, but there are exceptions.  The difference generally, is in what you get!

Though a fair question, it’s a difficult one to answer without more information.  There’s a vast price difference between a Chapter 7 and a Chapter 13 bankruptcy.  This is mainly because a Chapter 7 usually last about 90 days, and a Chapter 13 can last up to 5 years, and requires significantly more work.  On the other hand, generally in a Chapter 13, most of the fee is paid through the Plan, and not out of the debtor’s pocket.  Hence, a Chapter 13 can be, in many situations, “more affordable”, though, a terrible decision for some.

Fair, Effective, and Affordable

It’s the old axiom, “You get what you pay for.”  It’s important to keep in mind that the process of filing for bankruptcy relief is not just pushing a pile of papers, filling out forms, and making a trip to the courthouse.  In a bankruptcy, you are modifying the rights of your creditors, and building a financial future that is considerably better than your financial present.  There are issues about asset protection, debt dischargeabilty,  and income limitations.  These all involve complex legal analysis.  Not unlike estate planning or forming a corporation, if not done properly can leave you worse condition than you were in before you filed.  At a minimum, improperly done, a bankruptcy can leave a debtor without the relief they worked, and paid for.

Do Not Fall For the Bankruptcy Bait and Switch

There are companies and law firms out there that over promise and under deliver constantly.  It’s an absolute shame, and in some instances a crime.  Law firms and other debt relief companies lure people in with a promise of some extremely low price for helping them, only to leave the clients looking toward a future of paying exorbitant fees down the road.  Do not fall for the bankruptcy bait and switch.

Some firms break this down and advertise that they will prepare the Petition for as little as $300, though they do not tell the rest of the story.  Preparing a Petition alone is not representing you in a bankruptcy.

“Imagine asking the mechanic how much they charge to change the water pump in your car.  They quote a price that does not reflect the work to take the motor apart and remove of other parts to get to where the old water pump is.  Rather they just quoted a price for putting in a couple of screws for the new water pump.  Yeah, it’s kind of like that.”

What Should You Look for When Hiring a Bankruptcy Lawyer?

Experience, habit, and reviews: just to name a few of the indicators on whether or not you have the right person for the job.  Of course, an experienced bankruptcy attorney can help you determine if you qualify for relief.  More importantly, they can help you determine if it’s a good idea or not.  The ability to qualify is a function of what is called the Means Test in bankruptcy, a mathematical formula if you will, using the information that you are legally required to provide.  Doing the right thing is quite a bit more difficult, and just because you may qualify for a Chapter 7 bankruptcy, in now way does it mean you should file for relief under the bankruptcy code.  I generally tell my client that qualifying is the easy part of the task, knowing it to be the right thing to do under your situation is quite a bit different.  We meet people all the time that although they qualify, filing a bankruptcy is a horrible choice to make.

The Cost of Bankruptcy

Let’s break it down to the numbers here.  Below are what I have seen as the typical cost of filing bankruptcy in this area, of course subject to skill, experience, and availability.

Filing Fee:

The US Bankruptcy Court imposes a fee in most cases to file.  In a Chapter 7, that filing fee is $335.00.  In a small number of cases, a debtor can ask the Court to waive that filing fee by filing an application for such.

Class Fee

Before you can file your case, you must take an on-line course.  That course generally last a few hours, and prices range anywhere from free to $30, depending on the company used.

Legal Fee:

Part of the cost to file bankruptcy at the legal fees.  Most lawyers in this area charge between $700 and $1500 for the legal work, which includes the consultations, meeting, petition preparation and review, and attendance at the 341 Meeting of Creditors. 

Initial Consultation:

These are generally free.  Why?  Because any quality attorney should want to speak with you first to determine if they can even help at all.   This is to establish not only an attorney client relationship, but also to determine if they can provide the services needed.  Most importantly, at that meeting, you’ll learn the total cost to file bankruptcy.  Often, people seeking information will ask me if I offer a free initial consultation.  I explain to them that “this consultation is as important to me as it is to them, and I would not charge my time there, well, as long as the don’t charge me for theirs”.

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