How Much Does It Cost To File Bankruptcy?

Filing for bankruptcy can make debts more manageable or even give a clean slate, but it also has a major impact on your ability to obtain loans or credit for some time into the future. Those filing for bankruptcy are likely doing so as a last resort. Money is often tight. How much does it cost to file bankruptcy? We’ll go over everything you need to know.

The Cost Of Bankruptcy: At A Glance

The two biggest factors in determining the cost of your bankruptcy are the type being filed and attorney fees. The cost of the initial petition includes the cost of the motion itself as well as administrative fees. If for any reason your bankruptcy case is reopened after it has been closed, you’ll need to pay a fee for a motion to reopen, but it won’t include the administrative fees.

There is some variance in total court costs because every case is different. Additionally, attorney costs vary widely depending on where you live and how the attorney structures their fees.

*Filing fees based on a bankruptcy court in the Western District of Michigan; may vary depending on your location

What’s Included In The Cost Of Filing For Bankruptcy?

Let’s break down the costs of filing through a quick list:

• Court filing fees: You can think of the petition fee as the initial motion to file for bankruptcy, along with the administrative charges associated with filing. Beyond that, your costs will vary based on motions that may need to be filed that will be different in every case. There are also charges for document production that vary based on the information being sought from the court.
• Attorney fees: Navigating the bankruptcy process is complicated. You may benefit from legal representation. Just be aware there’s often a cost associated with this.
• Credit counseling: Before you file for bankruptcy, you generally have to take a credit counseling course. A debtor education course must be taken after you file. Agencies may charge a reasonable fee.
• Miscellaneous expenses: You may have travel expenses and missed income if you missed work while going back-and-forth for court time or meeting with an attorney.
• Debt reorganization: There are expenses associated with the bankruptcy itself, but beyond the legal process, outside of Chapter 7, bankruptcy involves a reorganization of your debt to make it more manageable. The debt doesn’t go away. You will need to factor in making the payments on a regular basis.

What Are The Different Types Of Bankruptcies?

Let’s break down the several types of bankruptcies.

Chapter 7 Bankruptcy

In a Chapter 7 bankruptcy, debts are wiped out and the borrower is given a clean slate. In exchange for this relief, creditors can take property as compensation to satisfy existing debts.

There are state and federal laws that allow for the protection of certain assets like a primary residence and a car. You also have the option not to include secured debt in the bankruptcy. You just have to continue making the payments.

Not all debts are eligible to be removed via Chapter 7 bankruptcy. For example, back child support or alimony would still be due. You also can’t get out of certain taxes or loans secured by the government.

You can expect certain fees with Chapter 7 bankruptcy:

• Filing fee: $260
• Administrative fee: $78
• Attorney fee: Up to $3,500
• Credit counseling: Up to $50
• Trustee fee: $15

Chapter 11 Bankruptcy

Chapter 11 bankruptcy is also known as a “reorganization” since this type is used by companies to formally enter a debt repayment plan in order to reorganize their business finances. However, individuals who are self-employed may use this to reorganize business debts as well.

Since Chapter 11 bankruptcy cases are complex, hiring an attorney will cost more than the cost of filing other bankruptcy types. Businesses may be looking at paying tens of thousands of dollars, if not more.

• Filing fee: $1,167
• Administrative fee: $571
• Attorney fee: Up to $18,000
• Credit counseling: Up to $50

Chapter 12 Bankruptcy

Chapter 12 bankruptcy is a reorganization bankruptcy for those who support themselves through a family farm or fishery. This is a mix of a Chapter 11 bankruptcy and a Chapter 13 one. It’s somewhere between reorganizing debts of an individual and those of a separate corporation.

In any case, the idea is to have the court analyze what payments can be afforded and restructure the debt that way. Creditors can file motions as well and there’s a negotiation that takes place.

• Filing fee: $200
• Administrative fee: $78
• Attorney fee: Up to $6,000
• Credit counseling: Up to $50

Chapter 13 Bankruptcy

A Chapter 13 bankruptcy reorganizes debt rather than wiping it out, so it has much more in common with a Chapter 11 or Chapter 12 bankruptcy than Chapter 7. Yet, if you don’t own some kind of business, you must choose between Chapter 7 and Chapter 13.

There are a couple of considerations here. First, not everyone qualifies for Chapter 7. There’s a means test because the government doesn’t want to let you wipe out all of your debt if you can afford to make payments.

The second reason you might go with Chapter 13 is that based on you trying to come up with a plan to deal with your debts, rather than let go of them entirely, future creditors are generally more willing to give you access to credit and loans for things like mortgages and cars sooner.

One thing you’ll notice is that attorney fees can be slightly higher for bankruptcies based on chapters 11, 12 or 13. In addition to complexity, these cases just tend to take longer because there’s negotiation between you and your creditors.

• Filing fee: $235
• Administrative fee: $78
• Attorney fee: Up to $6,000
• Credit counseling: Up to $50

Do You Need An Attorney To File For Bankruptcy?

It’s possible to file for bankruptcy without an attorney. You’ll need to be very organized, though. If you go this route, check out the resources available through the U.S. Courts website. Exploring the pages will not only help you determine if and what type of bankruptcy is right for you, but you’ll also be able to see what documents you’ll need to file with your petition.

It’s worth noting that the bankruptcy process is complicated. Working with an attorney could help you hold onto items that you want to keep out of the bankruptcy and provide invaluable assistance in navigating the court system and advocating on your behalf. If money is an issue, you may be able to find pro bono, or free, representation in your area.

Ways To Pay Bankruptcy Fees

If you’re looking to limit or avoid fees in a bankruptcy, there are several things you can try.

• Fee waivers: If you’re within 150% of the federal poverty level, the court has discretion to waive fees in Chapter 7 cases.
• Pay in installments: If it’s not Chapter 7 or you make too much income to qualify, you can set up a payment plan to pay in installments. This breaks up the cost over time.
• File “pro se”: If you file pro se, you’re representing yourself in court, which would eliminate attorney fees. However, you may have to be extremely savvy to do this because navigating the legal system and the motions and documentation required can be extremely difficult.
• Work with a legal aid society: By working with a legal aid society, you may be able to find an attorney willing to work for free or for a nominal fee.

What Are The Long-Term Effects Of Filing For Bankruptcy?

On one hand, filing for bankruptcy can provide you the breathing room to better manage your debt in the long term by either discharging it altogether or making the payments more manageable through negotiations after looking at your expenses and income. But, bankruptcy is not without consequences.

After filing for bankruptcy, this negative mark will show up on your credit report. For Chapter 7 bankruptcy, it’ll remain on your credit report for 10 years, whereas Chapter 13 will stay on your report for 7 years. According to Experian™, filing for bankruptcy can knock up to 200 points off your credit score.

You could find it hard to qualify for other loans or other products that require a good credit score, so it’s worth it to take time to learn how to fix your credit after bankruptcy. Although it stays on your record for a long time, typically the more time that passes, the less of an effect it has.

If you implement good habits like making your payments on time and having low credit utilization, your credit will bounce back over time. The higher your score prior to filing, the more of an impact bankruptcy can have on your score.

The Pros And Cons Of Filing For Bankruptcy

If you’re considering bankruptcy of any kind, it’s important to weigh the benefits and downsides.

Pros

Depending on the type of bankruptcy you file, all of the following could be benefits:

• Provides a form of fresh financial start
• Protection from creditors
• Potential dismissal of debts (Chapter 7)
• Pay less than you owe on debts (Chapters 11, 12 and 13)
• Potential to prevent or delay foreclosure
• May stop or slow down repossession of your car
• Could prevent lawsuit over debts

Cons

The following can be big downsides of bankruptcy:

• The expense of filing for bankruptcy
• The possible loss of certain assets
• May still have responsibility for certain debt payments
• Credit score will drop significantly
• Difficulty opening new credit accounts or obtaining new loans
• Bankruptcy on your credit report for 7 – 10 years

Alternatives To Filing For Bankruptcy

Before going through with bankruptcy, make sure you’ve explored all possible alternatives, including the following:

• Credit counseling: Credit counseling involves sitting down with an advisor and going over a budget. The idea is to work with them to create a plan to get back on track in paying off your debts.
• Debt consolidation: Debt consolidation is the process of refinancing existing high-interest debt into a new loan at a lower rate so that you can better manage the monthly payments. Accessing home equity or taking out a personal loan are common ways of doing this.
• Sell unwanted items: Getting rid of items you’re no longer using can help you raise funds.
• Earn extra income: This is obviously easier said than done, but it may be beneficial to look into a side hustle to earn extra money that you can then put toward your debts.

Cost Of Bankruptcy FAQs

We’ve gone over many options, but let’s try to answer a few more questions.

How much debt should I have to file bankruptcy?

There isn’t a minimum amount of debt you need to have to file for bankruptcy. You only need to prove that you’re unable to afford paying back your debts.

How long does it take to rebuild credit after bankruptcy?

Because bankruptcy has such a long-term impact on your score, it may take several years to rebuild your credit. However, you can speed the process along by maintaining good habits such as making timely payments and not overextending yourself in terms of debt.

What is the cheapest type of bankruptcy?

Because Chapter 7 involves the complete dismissal of debts, it’s the least complicated and tends to be the least expensive option. It’s important to note that not everyone qualifies for this, however.

Can I represent myself in a bankruptcy case?

You can represent yourself in your case. However, bankruptcy cases are complicated and you may find benefit from an attorney’s guidance.

The Bottom Line: The Cost Of Filing For Bankruptcy Varies

The cost of filing for bankruptcy varies quite a bit depending on your situation, the type of bankruptcy you’re filing and whether you work with an attorney. While you can file yourself, having representation can help you navigate the complicated legal intricacies. Before considering bankruptcy, make sure to investigate alternatives. Credit impact can be substantial.

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