When you’re going through tough financial times and falling behind on your debts, getting a fresh start after filing for bankruptcy may appeal to you. But bankruptcy comes with its own bills too. There are costs to consider, including fees for a bankruptcy lawyer if you choose to hire one to represent you at bankruptcy court.
Let’s look at how much it costs to file a bankruptcy petition so you can decide whether it’s a smart option for your financial situation.
The types of bankruptcy
To understand how much filing bankruptcy might cost you, you need to first know which type of bankruptcy you might file under the U.S. bankruptcy law.
If you plan to file bankruptcy and you have a steady income, you can adjust your debts with a Chapter 13 bankruptcy. This type of bankruptcy includes a repayment plan. Chapter 13 repayment plans are usually three to five years in length and can include unsecured debts, such as credit cards, and secured debts, such as mortgages.
With a Chapter 13 bankruptcy, you might be able to avoid foreclosure of your home. You can do this by making a series of catch-up payments. So if you are falling behind on your mortgage payments and wish to keep your house, a Chapter 13 bankruptcy might be a choice you could consider.
Another option is to file a Chapter 7 bankruptcy, which doesn’t have a repayment plan. Chapter 7 bankruptcy can make some debt go away. It discharges unsecured debts, such as credit cards and medical debts and might be a better fit if you have a large amount of unsecured debt.
When you file a Chapter 7 bankruptcy, the court puts a temporary automatic stay on your debts, and a consumer bankruptcy trustee is assigned to your case. The trustee reviews your finances and might sell some of your properties. The proceeds will go toward repaying your creditors. There are types of properties you’ll be able to keep during a Chapter 7 bankruptcy and types you cannot. The specific lists of these properties depend on your state.
If you are contemplating a Chapter 7 bankruptcy, review which properties are exempt in your state.
You may be able to bounce back after bankruptcy financially but doing so also damages your credit. A Chapter 7 bankruptcy or a Chapter 13 bankruptcy will leave major negative marks on your credit history for a number of years.
A Chapter 7 bankruptcy will leave a negative mark on your credit report for as long as 10 years from the date of the bankruptcy filing. A Chapter 13 bankruptcy will leave a negative mark that lasts on your credit report for seven years.
Knowing the exact pros and cons of the bankruptcy type you’re filing is essential. Getting legal advice from a lawyer or starting with a free consultation is a good first step.
You can also read these helpful facts about bankruptcy.
Typical bankruptcy fees
How much it costs to file bankruptcy depends on the exact route you take and the lawyer you hire. Here is a roundup of the usual cost of filing:
- Court filing fee: Normal case filing fees are $235 for Chapter 13 bankruptcies and $245 for Chapter 7 bankruptcies.
- Administrative fee: Typical administrative fees are $75 for Chapter 7 and Chapter 13 bankruptcies. You’ll pay this fee to the court.
- Credit counseling fee: If you are planning to file bankruptcy, you’re required to receive credit counseling. It must be from a government-approved organization and be within 180 days of filing for bankruptcy. The flat fee for this service is about $50. Additionally, you’re required to have a bankruptcy credit counseling course after filing, which costs between $50 and $100.
- Printing and mailing forms costs: When you file bankruptcy, you’ll print out and mail many forms. These costs vary but can add up, so it’s wise to view them as additional fees and include them in your bankruptcy budget.
- Bankruptcy attorney fees: You may need help with your bankruptcy process from a law firm. These fees will depend on the complexity of your case. The average cost of bankruptcy attorney fees for a Chapter 7 bankruptcy is $1,250. The average attorney fees for a Chapter 13 bankruptcy is about $3,000.
How bankruptcy attorney fees work
How you’ll pay for a bankruptcy attorney depends on the type of bankruptcy you file.
When you file a Chapter 7 bankruptcy, an attorney will require you to pay the attorney fees before filing for bankruptcy. After that, you’d pay for the bankruptcy filing fees.
As for a Chapter 13 bankruptcy, the attorney fees may be paid after the bankruptcy case is filed. But an upfront portion is typically paid as part of the attorney’s retainer.
The bankruptcy court will have rules or guidelines for attorney fees and these guidelines set a “no look” fee amount for Chapter 13 bankruptcy cases. Some courts also set “no look” amounts for Chapter 7 cases. If the attorney fees are equal to or less than the “no look” fee, the court will allow the attorney fees.
How to pay for your bankruptcy
When you file for bankruptcy, it’s normal to assume you have no money. How do you find the money to pay for the cost to file bankruptcy? Here are some tips to consider.
- File bankruptcy on your own. Hiring a bankruptcy attorney is expensive, and it’s usually the biggest cost when filing bankruptcy. You can prepare yourself to file bankruptcy through bankruptcy education courses without an attorney’s help.
- Apply for the filing fee to be waived. In some cases the bankruptcy court may approve a request to waive the filing fee.
- Apply for a payment plan. Paying for the bankruptcy cost with a payment plan, such as with a Chapter 13 bankruptcy, will help to spread out costs.
- Find a pro bono lawyer. If you need the expert help of an attorney but can’t afford the cost, you may find a pro bono lawyer. This may take some research and effort, but some lawyers offer free legal aid.
- Use your tax refund. If you recently filed your taxes and are expecting a tax refund, you can use it to hire a bankruptcy attorney.
Important steps to take after filing bankruptcy
You can take positive steps after bankruptcy. Overdue debts have been wiped away or adjusted and you’re paying them off through a repayment plan. The stress of being behind on your bills is over. It is time to move forward. Here are two of the most important moves you can make:
Rebuild your credit with a secured card
You can already begin taking steps to start rebuilding your credit. But you’ll have to start at the bottom. Right after bankruptcy, you may only qualify for a credit card with a secured credit line, also known as a secured credit card. To get started with a secured card, you’ll need to provide a refundable security deposit for the credit card issuer. If you want a $200 credit line, you’ll need to provide a security deposit of $200.
Be sure to choose a secured card issuer that reports your on-time payments to the credit agencies. Pay for small things with the card so you can pay your balance off with ease. This is all you need to do to start rebuilding your payment history. Payment history accounts for 35% of your credit score. Re-establishing a good payment record will get your credit back on track.
Some credit card issuers will move you up from a secured card to an unsecured credit card once you establish a solid payment record in a year or two. You’ll get your security deposit back and receive an unsecured credit line at that point.
Work on paying off your debt
Although bankruptcy is a form of debt relief, it may not remove all your debts. There are a couple of key strategies to consider when you’re learning how to pay off debt. Each of these strategies has its pros and cons:
- Debt avalanche: You can work on paying the minimum amount on every debt. You’d then make an additional payment toward the debt with the highest interest rate. This approach makes the most financial sense because you reduce the most costly debt first. Once that debt is fully paid off, you can move to the debt with the second-highest interest rate and so on. While using this approach, make sure to continue making the minimum payment on all your debts each month.
- Debt snowball: Alternatively, you can work on paying off as many debts as possible. Start with paying the minimum on all your credit accounts. Then put any extra money toward paying off your smallest debts first. Once the smallest one is paid off, you can move on to the second smallest and so on. If you have several small credit card debts, this can be a good strategy.
Regardless of the strategy you choose, make sure you put aside enough cash for your debt payments. Establishing and sticking to a clear budgeting plan can help you meet your financial obligations.
How much debt do you have to have before you can file bankruptcy?
There is no minimum debt requirement for filing bankruptcy. But most bankruptcy attorneys won’t accept clients with less than $10,000 of dischargeable debt through bankruptcy. Non-dischargeable debts fall into a different category and may include obligations such as federal student loans.
How much does it cost to file bankruptcy without a lawyer?
Without an attorney, you’ll still be responsible for filing and administrative fees. Filing fees are $235 for Chapter 13 bankruptcies and $245 for Chapter 7 bankruptcies. Administrative fees are $75 for either type and credit counseling fees are about $50 to $100.
Is there a difference in cost if you file Chapter 7 or Chapter 13?
Yes, there is a cost difference. At $245, the filing fee for Chapter 7 bankruptcies is $10 higher than the filing fee for a Chapter 13 bankruptcy.
Bankruptcy can be a way to reset your finances and bring an end to collection calls and worries about the difficulty of paying back all you owe. Bankruptcy can be a positive step forward for your finances when done right. But it will hurt your credit score for several years. This negative impact can last between seven and 10 years, depending on the type of bankruptcy you choose.