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The Cost of Filing for Bankruptcy

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This morning I wrote about the different types of individual bankruptcy but I didn’t discuss how much they cost.

Yep, even if you don’t have any money left and want to file for bankruptcy, there are costs involved! There are costs involved because bankruptcy involves the courts and the employees of the court have to get paid! The cost of filing for bankruptcy breaks down into three types – required credit counseling, bankruptcy filing fees and attorney fees.

Let’s quickly recap the two different types of individual bankruptcy. Chapter 7 bankruptcy is where you liquidate almost everything and your eligible debts are discharged. Chapter 13 is a reorganization bankruptcy where you renegotiate your debts so that you can pay them off in 3-5 years. For completeness sake, Chapter 12 is the Chapter 13 version for family farmers or fishermen.

Required Credit Counseling

Before you can declare bankruptcy, the court generally requires that you get credit counseling from an approved counseling organization (there are exceptions and you can file request a waiver). You can find a list of approved credit counseling agencies at the U.S. Trustee Program website. The title of that page, “List of Credit Counseling Agencies Approved Pursuant to 11 U.S.C. § 111,” references the section of the U.S. Code that requires pre-bankruptcy counseling. The FTC offers some advice on how to choose a credit counselor.

The cost of these programs varies from area to area so you’ll have to do some legwork to find the actual cost of these.

Bankruptcy Filing Fees

  • Chapter 7 – $299
  • Chapter 13 – $273
  • Chapter 12 – $239

Fairly straight forward right? Those are the total fees according to the Administrative Office of the U.S. Courts.

Attorney Fees

Here’s where the numbers aren’t so clear because you’re paying an attorney to help you properly file the paperwork. This can run anywhere from several hundred to several thousand dollars but it’s generally recommended that you hire an attorney for the process. You are permitted to represent yourself in bankruptcy court but mistakes can be very costly. Fortunately, you may qualify for pro bono/free legal services, contact your state or local bar.

Long Term Cost

None of the listed “costs” considers the the long-term financial impact of filing for bankruptcy. When you file for Chapter 7 bankruptcy, it’s reported on your credit report for ten years. A Chapter 13 appears for seven years. If you decide to go down this road, you have ot be sure it’s the only answer.

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12 Responses to “The Cost of Filing for Bankruptcy”

  1. Yana says:

    I was once in a position where bankruptcy was an option, but I think it is too commonly done and without good cause in many cases. I really think bankruptcy should be a last resort. Many people say this, but it is so socially acceptable to file that they do it when they don’t really have to. First, if you can’t pay your bills, you shouldn’t be lining the pockets of a lawyer or the civil court system. If you are that bad off, nothing can be taken from you, which is the only reason ever to file, in my opinion. The time to file bankruptcy is when something IS taken from you, to get it returned and stop further actions. I never got to that point. Bankruptcy ruins credit for awhile, but my neighbors did it at the same time that they purchased a new car, and within a couple of years they bought a house.

    I don’t care to use credit, but I think that its best use is for the exploitative medical system in America. It is fitting that so many bankruptcies are due to medical bills.

    • saladdin says:

      that’s what i take out of it. if medical bills are a main cause of bk the question is “why are medical bills so high?”

      saladdin

  2. Bill says:

    Why file?

    Depending on the jurisdiction, many debts are effectively uncollectable in this economy.

    California prohibits deficiency judgments in foreclosures on first mortgage loans.

    My state has a short (3 year) statute of limitations on most debt collections (it also prohibits wage garnishment for private creditors except for student loans)

    I expect state laws to become even more populist in the future, expanding the “homestead” amounts protected from creditors, and instituting add’l hurdles for collection.

    • Lyssa says:

      What state do you live in that has a short 3 yr statue of limitations? I am constantly being sought after by creditors who don’t understand that I can’t pay my debts. I’ve been laid off from my position and can’t find steady work. I don’t own anything so what will happen when there’s nothing for them to take? They’ve filed a legal complaint but I can’t even afford an attorney to tell me what happens next!

      • Yana says:

        Nothing will happen if they can’t take anything, except that your credit report will suffer. Third-party creditors who call you on the phone mostly try to terrorize you with lies, so that you will magically have money to pay their pathetic wages. I don’t personally see any valid reason for someone to pay a collection agency, because the debt has been written off by the one who was owed the money, at that point. I think of them as shady bystanders, just waiting to grab some money that they never had a right to in the first place. It is a very good thing to never talk to the likes of them. Next best is to sue them for their illegal actions taken during their phone calls.

        The only time something can be taken from you, if there is something to take and its existence is known to the opposition, is through a lawsuit. And in that case, if you absolutely can’t pay your debt but you do owe it and know you will lose in court, you should not even appear *unless you are legally required to do so*. If you appear, you are likely to give information that they do not already have. That information can have real collectors after your future earnings/property for years to come.

  3. Jeremy says:

    There was a segment on NPR a while back that was talking about bankruptcy and a few things really stood out to me.

    1. A lot of the callers were complaining about not being able to afford bankruptcy. Obviously, it can be expensive and if you can’t find pro bono legal counsel. That’s a bit of a Catch 22. You’re so broke you can’t even afford to go bankrupt legally.

    2. What was even more shocking were the amounts people were talking about filing bankruptcy for. One lady owed a just over $3,000 and was trying to file but said she couldn’t afford to because it would cost another few thousand for legal fees. I know that dollar amounts are all relative, but if I had to guess, bankruptcy is clearly not the best option.

    A lot of people were in similar situations where the debt wasn’t all that much and the money spent to actually file would be half as much or more of what they were trying to escape in the first place.

  4. Disaster says:

    I’m a financial advisor and made an investment with 0% money from credit cards. It was a bad decision and now the investment is frozen and under investigation from the state. It probably won’t survive to return anything. I owe a previous financial employer $100,000 (signing bonus-8 yr. forgiveable loan), credit cards $260,000, $200,000 for a contract that is tied to the investment, house $650,000. I now owe about $15,000 a month in payments and make about $3,000 a month. Will I be fired as a financial advisor if I file for bankruptcy? I’ve learned some unforgetable lessons, can I keep my job? I’m sure I’m a better financial advisor now than when I started!

  5. Sheila says:

    It’s all a catch 22. I’m a single parent, lost my job almost 2 years ago. I do not qualify for legal aid and cannot afford to file bankruptcy. A creditor IS taking me to court. I have no control as I can’t afford any kind of legal help. I think it is a SIN that these banks can go after the little people while they get bailed out by the government.

    If I had known how easy it is to lose everything you work for, and your children as well, (Can’t have children if you are homeless, right?), I would have never worked. Ever…I would have had more kids years ago and lived on welfare. The Welfare bunch get treated like royalty in our country. The workers get treated like garbage.

    I no longer believe in our country.

  6. Anonymous says:

    Carmen says:

    Sheila you are absolutely correct. When I lived on welfare and section 8 everything was much easier than it is now. I bought a home in 2004, the house is now worth half of what I paid for it. I am not going through a divorce. My ex-husband to be tried to get a loan modification but he didn’t qulaify, the bank said he didn’t make enought money. He makes over $20 an hour and it’s just him. My friend who is currently unemployed qualified for a loan modification. What is wrong with this picture? I’m happy for my friend, but it doesn’t make sense.

  7. Wow says:

    Disaster,

    As someone in the financial industry, specifically financial advice, I am appalled at your bad judgment. We teach others to stay out of debt and there are no good fast investments….esp with credit cards involved.

    Recruiting within the financial industry, professionally, you can get another position with a firm, granted your FINRA record is clean and the senior management of the firm personally approve your offer letter. You will have to explain the circumstances in great detail, possibly providing the loan repayment and bankruptcy docs.

    Good luck.

  8. Marlene says:

    I am a little scared. I am going to be 80, my job was eliminated, I have emphysema and treated for lung cancer. I have nothing but my social security. What can the creditors do to me? None are secured loans. Creditors keep calling every day. What can I do?

  9. Ms Johnson says:

    There are definitely alot of things that seem very wrong with the big picture in this country in regards to financial issues and the way things are handled. Difinitely a catch 22.It is very difficult to survive as a mordern day working person. I do agree that people that take advangetage of system and they are catered to.To Ms.Marlene, everything will be just fine. Don’t let anyone worry you!


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