Costs of a chapter 7 bankruptcy
Before filing for chapter 7 bankruptcy, consider the costs. In addition the initial filing fee, there are costs associated with attending required credit counseling sessions and hiring a lawyer. The average total costs for filing bankruptcy are almost $1500.
The U.S. bankruptcy courts charge a $306 filing fee for Chapter 7 bankruptcy. This includes the base fee that goes to the trustee who will be liquidating your assets.
If you can't afford to pay the whole fee upfront, the court may accept an installment plan. If you can't afford even that, you may qualify for a waiver. These waivers are granted at the court's discretion, and you may need to show proof you can't afford the fee. In general, you have a good chance of having your request approved it your income is below 150% of the poverty line.
Bankruptcy lawyers' fees can vary, based largely on where you live and how complicated your case is. In general, expect fees to range from about $1,000 to $2,000.
You will probably have to pay the entire fee upfront. This may seem unfair, but keep in mind, the lawyer knows you are having trouble paying your bills and does not work for free. Unlike in Chapter 13, where the lawyer knows payment will be coming as part of your payment plan, the only way a lawyer can ensure payment for a Chapter 7 bankruptcy is to get it before starting work. Many will offer a free initial consultation, so you can talk to several, compare prices and decide who you feel most comfortable with.
In some states, it's possible to save a little money by going to your meeting of creditors without your lawyer. Not all states will allow this; some require your lawyer attend the meeting if you have one.
It is legal to file your Chapter 7 case on your own, but it's not usually advisable. Although you can get basic help filling out the forms from the court clerk's office or a bankruptcy preparation service, they can't give you real legal advice. And since each case is different, it's safest to get advice specific to your case. Unless you know exactly what you are doing, you might end up giving up property you could have kept or losing some rights. Your case could also be dismissed, which would leave you still in debt but with a failed bankruptcy on your credit report.
If you absolutely can't afford the fees, you may be able to find a lawyer willing to do the work pro bono (for free) or for a reduced fee, although this may not be easy.
Fees for Required Counseling
Bankruptcy laws require you to take two classes as part of your filing. They are a credit counseling session before filing and a debtor education class before your remaining debt can be discharged (erased). You must pay for these classes yourself, and the fees can vary by agency. They generally run from $5 to $50 per class.
You must take the classes from a U.S. Trustee Program approved agency. These agencies are required to offer free and reduced-free services to anyone who can't afford their fees and who asks for a waiver before taking the class.
Indirect Costs of Chapter 7 Bankruptcy
You will be required to turn over all your non-exempt property to a trustee who will liquidate it to pay off as much of your debt as possible. You have very little choice about what you can keep, unless you can afford to buy some of it back from the trustee. So you could lose things you would have preferred to keep.
The trustee also gets paid for this work, and this commission come out of the funds generated from selling your property. Your credit rating will also take a hit. A bankruptcy stays on your record for 10 years, so you may have trouble getting credit for a long time. Companies that do give you credit are likely to charge a higher interest rate than they would have otherwise. So a bankruptcy can cost you time and money for many years even after it's been finalized.
When there's no other way out, bankruptcy can be a lifesaver. Just be sure you know exactly what you are getting into, and how much it's going to cost you, before you file.