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The Cost of Filing for Bankruptcy

This morning I wrote about the different types of individual bankruptcy [3] 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 [4]. The title of that page, “List of Credit Counseling Agencies Approved Pursuant to 11 U.S.C. ยง 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 [5].

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

Fairly straight forward right? Those are the total fees according to the Administrative Office of the U.S. Courts [6].

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.