How much does it cost to file for bankruptcy?

If you have had to go into debt in recent years – whether because of excessive spending on your credit card or due to unforeseen events like medical emergencies – getting out of this hole is now especially difficult due to high interest rates. And as the costs of essential goods like housing, cars, insurance and food continue to rise. because of inflation, many people are struggling to pay their bills. It can also lead to debt and make it more difficult to pay off previous balances.

Thus, some people now find themselves unable to pay off their debt within a reasonable time frame, leading them to explore options like bankruptcy. In 2023, more than 400,000 people filed for bankruptcy in the United States, a 15% increase from the previous year, according to data from the Administrative Office of the U.S. Courts.

However, filing for bankruptcy is not a free solution; this entails costs. So, exactly how much does it cost to file for bankruptcy? Here’s what the experts say.

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How much does it cost to file for bankruptcy??

There is no set amount people pay for a bankruptcy filing. Ultimately, the total costs of filing for bankruptcy can vary greatly depending on a variety of factors.

Some of the main factors that impact filing costs include:

The type of bankruptcy

Most people typically file for either Chapter 7 or Chapter 13 bankruptcy, which results in different costs, not only in terms of upfront fees, but also the amount you owe on your debt.

“Chapter 13, in which a debtor can keep more assets and devote disposable income to paying off creditors under a multi-year plan, is more expensive and time-consuming than Chapter 7, which generally involves letting the trustee will sell most of the debtor’s assets,” says Nancy Rapoport, professor of bankruptcy law at the University of Nevada, Las Vegas (UNLV).

But even though you typically have to sell assets in Chapter 7 bankruptcy, the benefit is that you can get your debts discharged “much quicker,” Rapoport adds.

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Administrative fees

Bankruptcy filing also comes with an administrative fee. To file for Chapter 7 bankruptcy, the fee is currently $338, while the price for filing Chapter 13 is $318. You may be able to have your Chapter 7 filing fees waived, but bankruptcy courts may also charge various other administrative fees, such as fees to convert a case to another type of bankruptcy or fees. costs related to files.

“You also generally have to pay for bankruptcy classes before and after filing, although the cost of these can range from free to $100,” says David Chami, managing partner at Consumers Attorneys.

However, these administrative costs alone should not guide your decision. For one, not everyone is eligible for Chapter 7 because you must pass a means test proving that you cannot reasonably repay your debts. Additionally, although Chapter 13 administrative fees are slightly lower, total costs can be much higher, especially since you must develop a repayment plan.

Legal fees

Although you are not required to retain a lawyer to file a claim bankruptcythis can help you qualify for bankruptcy and navigate the process.

Going it alone “is strongly discouraged,” says Chami. “Even if bankruptcy is the right or necessary choice for a consumer given their situation, it is a serious option with significant and lasting legal, financial and tax consequences and which requires a lot of documents, filings and work.”

Due to the amount of work involved, legal fees can add up, depending on factors such as your location and the type of bankruptcy.

“Attorney fees for a Chapter 7 bankruptcy typically range from $1,000 to $2,000, depending on the complexity of your situation. A Chapter 13 typically ranges from $3,000 to $5,000 and is generally determined by the complexity Of course, the lawyer you choose will also play a role in the cost you pay,” says Chami.

Alternatives to filing for bankruptcy

Since bankruptcy can cost thousands of dollars and have long-term consequences, such as impacting your credit score for several years, it is important to consider alternatives debt treatment, such as finding a debt relief service.

While a debt settlement might not offer as much debt forgiveness as Chapter 7 bankruptcies, for example, so it might not have as detrimental an effect on your credit. You may also find it easier to manage a debt settlement, for example if the the amount is relatively small.

“If you’re already behind on your payments, you might consider trying to settle those debts for pennies on the dollar rather than filing for Chapter 7 bankruptcy, which will stay on your credit for 10 years,” says Chami.

A debt consolidation A loan could also help you turn your existing debts into a more manageable monthly payment, but it’s important to understand the risks, such as being tempted to charge more on your credit cards after consolidation.

Another solution, if the debt is just a dispute between two parties, might be to resort to litigation or non-bankruptcy settlement, which is generally less expensive, Rapoport says.

The essential

Ultimately, it is important to weigh the total cost, both monetary and otherwise, associated with the different debt relief options and compare them to the potential benefits. Some people may be willing to face the credit consequences of filing for bankruptcy to try to get a fresh start after accumulating large debt, for example, while others might be better placed to benefit from debt relief services. However, it is important to stay on guard.

“As you begin to look for options, be wary of the large number of scammers who seek to take advantage of people in dire financial situations by offering debt settlement services that are not necessarily helpful or the best option. If something seems too good to be it probably is. That’s why legal advice is essential,” says Chami.