How Much Does It Cost To File Bankruptcy?

It’s the big question, right?

There are a couple ways the cost gets calculated and I’ll give you an explanation of both.  First, remember that the main types of bankruptcy are Chapter 7 and Chapter 13. 

To compare and contrast those now or after reading this blog, I would refer you to blog article entitled, “What type of bankruptcy is right for me?”  The gist is, one chapter of bankruptcy isn’t better than the other.  They just do different things and which chapter is best for you will depend upon your own particular situation. That said, one thing to always keep in mind along the way:  How much debt you can get rid of and never have to pay as a result of filing bankruptcy.  This, as compared with how much more you willl have to pay (including interest) and how long it would it take to pay it off...if you don't file bankruptcy.  That calculation, compared to a relatively inexpensive bankruptcy, is the real analysis.  For example, if the cost of your bankruptcy case is something like 10% (or even less) of what it might cost to pay off the debt with interest, then that knowledge might do wonders for keeping you motivated to at least check out bankruptcy...especially since...in most cases...you can find out for FREE.

Chapter 7

For this one I can only speak for how our firm does things, and by the way, I like it.  So will you.  We only charge for the work we will have to do.  We have something similar to a menu because like a restaurant you only want to pay for what you order.  We give you a whole sheet where you can see what relates to your situation and what doesn’t.  Then you see down to the penny, which services and benefits you are getting.  The point is to be candid, open, and have you be well-informed.  Here are some examples of items which require additional work by us to sort out.  Note: you’ll generally see a trend that each of these is something above, and beyond the normal.  Yes, we expect you to have a fair number of creditors and tens of thousands in debt, but there is a big difference between 15 creditors and 50.

Examples

The factors we have to plan for include households with elevated incomes, significantly more creditors and/or total debt, additional attention required for exemptions, reaffirmations on vehicles, a business case, or a judgment lien on real property.  Let’s use the last one as an example.  If someone owned a house, was sued over a debt, lost the suit, and had a judgment filed against them in the county where their house was, then there is a good chance the debt attached to the house in the form of a judgment lien.  While Bankruptcy Discharges are monumentally powerful, without additional steps and work, then the lien won’t get solved too.  So, during the case we need to gather additional information, prepare, file the Motion to Avoid Lien, and possibly go to a Hearing on your behalf to peel the lien off the house so it is then vulnerable to the pending Discharge.  It will cost several hundred, but then you will no longer be haunted for the next couple decades perhaps by these Liens that stick around, and if in that time you want to sell your house then the lien is gone without you having to pay the entire Judgment Lien amount plus 8% interest for every year it was there.  Because, to sell the house, they are going to require the lien to be gone, otherwise the house is encumbered.

Before and after

There is a most important distinction between when fees have to be paid in Chapter 7 versus Chapter 13.  For a Chapter 7 in North Carolina, and a majority of States, any money owed and paid to an attorney must be done before the filing of a case.  Any money still owed gets wiped out like other Dischargeable debts.  Without getting too technical, we are pretty much forbidden from having a situation like that and trying to collect.  I wish this restriction was not in place because it would give some more flexibility for those with tight budgets and few assets.  There are two pieces of good news though.  Chapter 7’s are short.  For most cases it is around 3 months in duration, and much of that nothing is happening because it is a window for cases if something had to be done.  Because those cases are short in duration the overall cost is often a fraction of a Chapter 13.  We still have to do the work upfront to get the Petition letter perfect, but we are not budgeting for years together.  The other good news is actually about Chapter 13’s because for those cases the fees can be paid upfront or entirely after it is filed, and everywhere in between.  Also, the, “after it is filed” doesn’t mean the next month.  The fees owed to your attorney might be spread out over the entire length of your plan.  With multiple years being an option means ultimate flexibility for you for your budget and how fast you can get filed.  No money being paid upfront can do wonders for getting things moving.

Discounts

As of the time of this writing we still have one discount in place that has been around for a few years or more.  The discount was a $200 savings to you if the case paid within 60 days.  Once it is paid then that isn’t a hurdle in the way of it being filed and you getting relief.  With the shorter window we don’t have to do as many updates to the numbers (i.e. less math) in your file and there is less back-and-forth happening.  We also have extended the same discount for people who set up an autopay.  It’s flexible too.  It can be set to happen after whenever you are paid, or anytime that works best for you.  We aren’t trying to add hassle.  We also have less than favorable feelings about creditors most of the time, so we would rather not be one.  You have enough of those, we’d rather our relationship be more like the same team.  

Chapter 13

Chapter 13 cases average 3-5 years.  This is often a good thing because the time is on your side by giving you more time to catch things up, like a mortgage that was 6 months behind, or pay off things that have to be paid, like a vehicle you are keeping but are now paying a lower interest rate for.  Because these cases last longer, the Judges across North Carolina have set limits on how much attorneys can be paid.  Part of the reasoning behind this may be that one of the biggest complaints people have about attorneys is in regard to money..specifically, their attorney wanting more later on.  So, we have the, “No Look Fee” or “Flat Fee,” which means that for many of the regular, plain vanilla cases there is a set amount that can be charged.  If the attorney is to be paid more by their client then there needs to be an exception granted by the Court.  Remember, up above the example of a Motion to Avoid Lien being extra for a Chapter 7...same here.  The Court also has a menu of items in their Local Rules where they set out the customary maximum for a list of items that were additional services beyond the plain vanilla case.

One size fits most

The Flat Fee does vary some depending on where your case is because the Eastern District stretches from the coast to just after Raleigh, Middle District of Durham to just after Winston-Salem, and Western District from there onwards.  Each District has a few Judges and they tailor how things are to what works best for their areas.  I don’t mean to complicate the explanation, but sometimes there is more than one Flat Fee per District.  The good news is, it might be to your benefit.  There is a cheaper tier for certain cases.  I’m not sure about other States, but case duration and amount of debt are the most likely factors for different tiers.

What about us?

We also have different tiers.  It makes sense that if we are going to avoid charging you for unnecessary things in Chapter 7, then we try not to in Chapter 13 either.  So, we do not select the Flat Fee every time, but make exceptions and pass the savings on to you when your case is going to be even easier.

Zero money down

For a Chapter 13, this means that money earned and owed to your attorney could be paid before and/or during your case.  It doesn’t have that same, “line in the sand” restriction against being paid after the case has been filed like Chapter 7 had.  We really try our best to limit the burdens on you.  A bunch of money sooner than later would be a burden for most.  We understand this and thus we offer a zero money down option for those who qualify, and many people do.  For the Eastern District the zero money down means that we front the Court costs for you and then get reimbursed later.  In the next paragraph we will detail those fees, but basically we are putting about $300+ of our money on the line because we believe in you.  Like I said before, same team.  More good news for you coming up.  Whatever is still owed to us is generally spread out over about a year or more.  When needed, this can go as far as 3 years and more for us. 

Court fees and other costs

We don’t control the Court fees, and I’m not going to talk bad about them though either.  The system works well and you get value for these too.  The Bankruptcy Court fees in North Carolina are $235-245 and a $75 administrative fee.  For this, you get Judges and Clerks with decades of experience.  This is a finely oiled machine.  I am flabbergasted when I hear about cases in some State court that drag on for years.  What is that about?  To clarify, while a Chapter 13 might last for 3-5 years, for many cases the details are all ironed in a handful of months.  Sometimes it is just a single meeting (341 meeting...no Judge there btw), the Plan goes to the Judge, gets Confirmed, and then smooth sailing.  Ideally, aside from the required 341 meeting, a client doesn’t have to deal with that other stuff.  We don’t want you to have to.  It happens behind the scenes and you are able to just focus on your normal life and your family.

List

Chapter 7: ($245 filing fee, $75 administrative fee, $15 trustee surcharge: Total fee $335)

Chapter 13: ($235 filing fee, $75 administrative fee: Total fee $310)

Credit Counseling $15

Debtor Education $15

Credit Counseling & Debtor Education?

As of 2005, these are required.  It is good information though.  Before and then after your case you have a few hours of financial education.  The goal was to help you on your way by equipping you with the knowledge to make you a more savvy consumer.

Summary

One Chapter is not better than another.  Chapter 13 can do things that Chapter 7 cannot, but it takes longer.  Since 7 is generally only a fraction of the time for the duration of the case it is often a fraction of the price, but must be paid before the filing.  There is no such restriction in regard to Chapter 13, which is why...with us for example...if you qualify you can even get filing for $0 Money Down.  In this case, there is no impediment to getting you started on the path to debt-free.  In addition, with Chapter 13, your payments are spread out over a period of 3 to 5 years, hopefully making them affordable. In any event, there is never a case where the cost of the bankruptcy is more than the cost, strain and stress of not filing. In most cases, far from it. Think about it.  It would make no sense to file bankruptcy in the vast majority of cases if filing didn't save you a buch of money...savings better spent on more important things...like taking care of your family.