The Cost Of Bankruptcy

How Much Does Bankruptcy Cost?

Filing for bankruptcy helps consumers and businesses get rid of their debts, repay their creditors and get a fresh start on their finances. But it costs money to do it, and, paradoxically, a shortage of money is the reason to file for bankruptcy in the first place.

How much does it cost to file bankruptcy? Sadly, there is no easy answer. The expense of filing a petition to the court is fixed for each type of bankruptcy. But what you’ll pay an attorney and how you’ll make the payments can vary widely, depending on who you hire, where you live and the complexity of your case.

Long-Term Costs of Bankruptcy

The long-term costs of bankruptcy can be devastating to your credit score and your ability to obtain loans at a reasonable interest rate for several years.

What is surprising is that the higher your credit score, the bigger the impact filing bankruptcy will have.

For example, if you started with a super-prime credit score – 720 or higher — you could see a 200-250 point plummet when you file for bankruptcy. If your credit score was in the near-prime (620-659), or sub-prime category (580-619), your score might only drop 125-150 points.

Either way, you end up in the deep-prime category (580 or below) and lenders become skittish about approving a loan for a home or car. If they do lend you money, the interest rate they offer could be 8% or higher than what you would receive with a super-prime credit score.

A bankruptcy blemish will stay on your credit report for 7-10 years, though the impact should lessen over time. You should also know that a low credit score could impact your insurance rates, your ability to rent an apartment, obtain credit cards or even qualify for a job.

It will take time to improve your credit score to the levels it was before bankruptcy, but it can be done. The steps toward rebuilding your credit include making on-time payments, creating an affordable budget (and sticking to it!), finding a co-signer for a loan or becoming an authorized user on someone else’s credit card.

Bankruptcy Filing Fees

Whether you hire an attorney or file for bankruptcy on your own, you’ll have to pay the court for the right to have your case heard. The amounts of the fees differ depending on the type of bankruptcy you choose to file, but they are standardized nationally and mandated by the U.S. Bankruptcy Court.

The three types of personal bankruptcy – Chapter 7, Chapter 11 and Chapter 13 – all require the person filing the petition to pay a filing fee and an administrative fee. A Chapter 7 filing also requires a $15 trustee fee to help offset the expense of the court-appointed administrator who oversees the case. (The trustee also earns a percentage of the sales of a debtor’s assets in a Chapter 7 bankruptcy.)

There is no trustee surcharge in a Chapter 13 filing, as the trustee in those cases receives a percentage of the monthly amount the debtor pays his or her creditors once a repayment plan is in place.

Chapter 11 bankruptcy is used primarily by businesses to reorganize their debts, though individuals can use it, too. But Chapter 11 is far and away the most expensive of the three types of personal bankruptcy filings. Chapter 7 and Chapter 13 are usually quicker and cheaper.

In most Chapter 7 and Chapter 13 cases, the filing fees are due when you file the bankruptcy petition paperwork with the court. However, if you can show that you are unable to pay the fees in a lump sum or at all, the court might agree to let you pay them in installments or perhaps waive them altogether.

An installment plan for an individual paying Chapter 11 filing fees requires the first $400 to be paid within five business days, with two subsequent $400 payments to be made within 60 and 90 days and the final $538 to be paid no later than 120 days of filing the petition.

Sometimes, a new question or issue comes up concerning a bankruptcy case that has concluded, and a party in the case wants to bring the new development before the court. When that happens, the filing is re-opened and, in some cases, an additional fee is charged. Re-opening fees generally are the same as the fee charged for the original filing.

Chapter 7 Total Filing Fees: $338

• Filing fee: $245
• Administrative fee: $78
• Trustee Surcharge: $15
• Re-opening a Chapter 7 filing: $245

Chapter 11 Total Filing Fees: $1,738

• Filing fee: $1,167
• Administrative fee: $571
• Reopening a Chapter 11 filing: $1,167

Chapter 13 Total Filing Fees: $313

• Filing fee: $235
• Administrative fee: $78
• Re-opening a Chapter 13 filing: $235.

Attorney Fees

Attorney fees differ from case to case, judicial district to judicial district and state to state. Where you live can make a substantial difference in what you pay for legal help with a bankruptcy. An even bigger factor, though, is the complexity of your case. Like everyone, lawyers want to be paid for their time, and the more time your case takes to resolve, the more it will cost.

Average Attorney Fee for Chapter 7 Bankruptcy: $1,500 to $2,500

A current reliable figure is difficult to pin down, but it is generally conceded that attorney fees for Chapter are $1,500 to $2,500. Factors that influence the rate are:

• Where you file the case
• Experience level for the attorney
• How difficult a case you have to prepare

Attorney fees generally are likely to be higher, for example, in bigger cities than they are in small rural towns. Recent National Bankruptcy Forum research found a range from $1,500 to $2,000 for a Chapter 7 attorney in Los Angeles, and from $1,000 to $2,200 in New York.

Most attorneys will charge a flat fee – a fixed amount regardless of the number of hours spent on your behalf – for a simple Chapter 7 filing. In almost every Chapter 7 case, you will be required to pay the fee in advance, before the attorney files the case.

Of course, every case is different, and a number of factors can affect the cost of your case.

Average Attorney Fee for Chapter 11 Bankruptcy: $18,000

And that’s for a small, simple case. A more complicated Chapter 11 case can cost an individual as much as $50,000 in attorney fees, and a large, complex case could run as high as $100,000 or more.

Because Chapter 11 bankruptcies involve two steps (called pre-confirmation and post-confirmation) and require reorganization of debt rather than asset liquidation (as Chapter 7 bankruptcies do), the process is much more complex and time-consuming. A case can take a number of years before it concludes. As a result, most attorneys will charge an hourly fee rather than a flat rate to handle a Chapter 11 case.

That’s a big reason Chapter 11 filings by individuals or couples are usually cost-prohibitive.

Average Attorney Fee for Chapter 13 Bankruptcy: $3,000-$5,000

Again, the location and complexity of a case make it difficult to pin down an average fee, but expect to pay your attorney somewhere between $3,000 and $5,000 for a Chapter 13 case. Sources indicate that you can add another $1,500 to that fee, based on how much work is required to prepare the case.

Chapter 13 fees are often governed by the bankruptcy court in the particular district in which it’s filed, so fees vary widely from district to district. Local jurisdictions establish “presumptively reasonable” attorney fees for Chapter 13 cases based on their complexity. For example, the presumptively reasonable attorney fee for a basic case in San Francisco was $3,500 in 2021. In central Alabama, it was $2,750.

Generally, attorneys won’t charge in excess of the established presumptively reasonable fee. When the fee charged meets or is less than the local guideline, it is sometimes called a “no-look” fee because the judge won’t need to review it. But if the fee is over the established amount, the court can intervene and order the attorney to refund some or all of it.

Generally, attorneys handling a Chapter 13 case will charge a partial fee in advance of formally filing the petition. The rest of the attorney fee then gets folded into the court-approved repayment plan, in which the bankruptcy trustee directs a portion of your regular payments to your attorney.

Myriad circumstances can add to the cost of a simple bankruptcy filing. Attorneys will charge more as the complexities grow, particularly if they require court appearances.

Factors That Can Add to Fees Include:

• Filing for a business bankruptcy as well as a personal one
• Whether you are filing jointly with your spouse or filing bankruptcy without your spouse
• You have multiple sources of income
• You have non-exempt assets
• You have numerous assets or unusual assets
• You earn more than your state’s median income for the size of your household
• Having an extensive number of creditors
• Having filed for bankruptcy in the past eight years
• Trying to stop another legal action such as a foreclosure filing against your property, an eviction, a bank levy or a repossession of property that served as loan collateral
• Accusations that you committed fraud, or the likelihood that such accusations might be made
• You have non-dischargeable debts such as student loans, child support, alimony or past-due taxes

How To Get a Fee Waiver

The Judicial Conference of the United States bankruptcy court says that an individual debtor may have filing fees waived if their income is less than 150% of the poverty line for their state and household size.

The individual must petition the court by using an official form 103b that is available online. The form requests information about family size, income, monthly expenses, and assets and must be submitted when you file for bankruptcy. The court won’t accept your application for fee waiver without a petition for bankruptcy.

The judge accepts or denies your request for a waiver, but may also ask you to appear in court to answer more questions about whether or not you can afford the filing fees. If the judge denies your request for a waiver, you must pay the fee in full or ask the judge to allow up to four installment payments.

Even if you don’t qualify for the fee waiver, you can apply to pay it via four installments. You can only apply for a fee waiver for Chapter 7 filings. Fee waivers are not available in Chapter 13 cases.

How to Find Bankruptcy Attorney Costs in Your Area

The attorney fees above are just averages, and, as we noted, fees quite possibly have increased since the Martindale-Nolo survey was conducted. Plus, they differ from region to region so it might be difficult to get a sense for a fair going rate where you live.

Given the consequences of bankruptcy, it’s wise to weigh the following considerations and steps to make finding bankruptcy attorney costs clearer.

• Meet with several attorneys before choosing one to represent you.
• Access bankruptcy-attorney fees, which are public record, through the searchable federal PACER website. Though PACER charges a small fee for downloaded information, it can be money well spent.
• Understand that the cost of living where you file likely will impact what you pay. Lawyers in large metropolitan areas, like everyone else, have bigger expenses than those in more rural settings. The higher cost tends to raise all professional costs, and bankruptcy representation is no exception.
• Recognize that attorneys with many successful years in the bankruptcy field almost certainly will demand larger fees than those with little experience. Not all lawyers are created equal.
• Consider the complexity of your case when picking a lawyer. If you have few assets and not many debts, your simple case might not demand the sort of representation that someone with a diverse source of income, a fat folder of creditors and perhaps a suspicion of fraud, might need.
• If your case is simple, think about filing your bankruptcy without a lawyer and handling it yourself.

Remember, not all bankruptcies are the same. Those with complicated cases might benefit from an experienced bankruptcy lawyer. If creditors challenge your financial statements and allege fraud, having an attorney able to navigate a complex case would benefit you. The same would be true for cases springing from medical debt, a fairly common culprit in bankruptcy filings.

Bankruptcy Education Courses: $50

One small fee that you mustn’t forget covers credit counseling. Completion of two credit counseling courses is required for petitioners in both Chapter 7 and Chapter 13 cases. The first course (pre-bankruptcy credit counseling) must be completed before you file for bankruptcy, and the second (pre-discharge debtor education) must take place after you file.

You must consult a nonprofit credit counseling agency approved for your district by the U.S. Department of Justice to arrange to take the courses. The Office of the U.S. Trustee, the federal agency that oversees the counseling requirement, sets reasonable fees for such courses.

Credit counseling agencies generally charge fees from $10 to $50 for their courses, though it is possible to find a course offered at no charge. They can be taken in person or online, and some are offered by telephone

If you are unable to pay for the courses, the law requires credit counseling agencies to offer them at a reduced rate or for free.

How to Save Money on Bankruptcy Costs

Although everyone who files for bankruptcy protection has unmanageable debts, some applicants are worse off than others. Be sure to fully document your financial situation before consulting a bankruptcy attorney. If you are unemployed, a low-wage earner, disabled or elderly, you might be able to use these low cost bankruptcy options.

Bankruptcy is a hard step to take and recovering from it isn’t easy. Though a successful Chapter 7 petition will discharge your debts, it will remain on your credit report for 10 years, affecting your ability to get a loan or any type of credit. A Chapter 13 resolution might not be as damaging, but it will require that you stick to a repayment plan for three to five years, even if the court reduces your debts.

Given the consequences of bankruptcy, an open discussion with an attorney about his or her fees can help. Obviously, if there are impediments to rebuilding your finances after bankruptcy such as a disability or your advanced years, that is relevant, and an attorney might be willing to reduce fees to mitigate the damage bankruptcy is certain to cause.

As we noted earlier, in most Chapter 7 and Chapter 13 instances, bankruptcy attorneys charge a flat fee, meaning they will tell you before starting work on your case what it will cost. In Chapter 7 cases, they’ll want the money up front; in Chapter 13, they often demand just a portion of the fee to start the case and will take the remainder through the court-approved Chapter 13 plan.

If legal representation costs more than you can afford, you should consider whether your local bar association or legal aid office offers free or discounted bankruptcy services.

And again, as a last resort, you can consider representing yourself in bankruptcy and either file the paperwork on your own or seek help from a bankruptcy petition preparer. Petition preparers, also known as typing services or paralegals, are non-lawyers who will generate the necessary court filings. Unlike lawyers, petition preparers can’t offer you legal advice, nor can they guide you in deciding which type of bankruptcy to file or what property and assets to include or exclude from your filing. They primarily offer a clerical service that leaves the decision making to you.

But since many legal forms are available online, petition preparers might have little to offer since they won’t guide you through the process or offer legal representation. If you don’t have internet access, they might be valuable, but you should understand their limitations before using their services.

Before deciding to handle your own bankruptcy without a lawyer, consider the consequences. The chances of running into trouble that might result in your case being dismissed are considerably greater if you don’t use an attorney.

Additionally, in a Chapter 7 case, you run a risk that your assets will be sold if you don’t understand how bankruptcy exemptions work. In a Chapter 13 case, you run a considerable risk that your Chapter 13 plan will not be drafted optimally if you do it yourself, and it’s even more probable that your plan will not be confirmed by the bankruptcy court.

How to Pay for Your Bankruptcy

Filing for bankruptcy will cost you even though you’re in no position to pay. Yes, in perhaps the ultimate Catch-22, you’ll need money to let your creditors know you don’t have any.

Though covering the cost of bankruptcy might not be the largest problem on your agenda, it is an issue. Most bankruptcy petitions require some form of legal help, and the more complicated the filing, the more help you’ll need. That means hiring a lawyer, and unless you know one who works for free, it will require money.

Legal fees are the biggest headache, but not the only one. You’ll also have to pay court costs and a fee for mandatory credit counseling. The combined bill could run into the thousands of dollars, so before you load up your briefcase and head for the courthouse, you need to know what you need to do, how much it will cost and where you’ll find the money.

If you’re unable to borrow enough money from family or friends to pay a lawyer, other options exist:

• File on your own, also called filing pro se. This reduces filing and administrative fees since you do the work yourself, but it can be very risky. If you fail to complete documents properly or on time, or if you face a creditor who questions your financial disclosures, you might find that you’re ill-equipped to handle your case. If done incorrectly, a Chapter 7 trustee can sell your assets.
• Obtain help from a free legal clinic or the Legal Aid Society. If your income is less than 150% of the poverty line for your family size and you can’t afford a plan to pay an attorney, you might qualify for pro bono legal representation.
• Find a bankruptcy lawyer who will work for you for free, known as pro bono representation. You can use the American Bankruptcy Institute’s attorney directory or consult your state’s bar association for lawyers who might take your case without charge. Some law firms require their attorneys to take 10% to 15% of their cases pro bono. Some bar associations also have programs where you may be entitled to discounted services even if they are not free.
• File under Chapter 13 instead of Chapter 7. Since a Chapter 13 plan is really an extended repayment plan, lawyers are much more willing to take your case if you can’t pay your fees up front.
• Use other tactics to raise the money. You should stop paying credit-card debts and apply the money to the attorney’s fee. Also consider taking a part-time job to earn the needed money or selling household items on Craigslist or eBay.