Written by attorney Stephen M Trezza

Costs of Bankruptcy: Chapters 7, 13, and 11

The majority of bankruptcy filings are for Chapter 7. It is the quickest form, generally costs the least, and provides an immediate discharge of unsecured debt after the liquidation of any non-exempt assets. Why is Chapter 7 so much cheaper than a Chapter 13 or Chapter 11 bankruptcy?

Chapter 7 bankruptcy is the cheapest form of individual bankruptcy because it is the quickest and least complex. A debtor and his attorney do not need to create a plan for repayment or prove they can make a budget work, they simply need to provide documentation that they are eligible and a list of their assets, earnings, and expenses. Because of this, the court filing fee is lower, and an attorney’s fees are usually lower.

Chapter 13 bankruptcy is more expensive because it is a more in-depth process. A debtor needs to provide all the documentation of a Chapter 7 debtor, but also must propose a plan to repay creditors that the court must find both fair to creditors and possible for the debtor to pay. The plan will usually take between three and five years to complete, at the end of which the court will grant a discharge to remaining unsecured debt. Although a Chapter 13 plan is often a good way for debtors to keep important assets such as cars and homes, they must do so by repaying their creditors, and often the expense and time required for such a plan is wasted when the plan is not feasible and must be converted to a Chapter 7 plan.

A Chapter 11 bankruptcy is the most expensive of the three. While an individual is eligible to file, usually the majority of filings are by large business entities that can afford the expense. Even most small businesses cannot afford the expense of a Chapter 11 bankruptcy. Its expense is the result of a timely and complex reorganization plan and debt repayment plan, both of which are difficult to create and get approval of by the court. Costs can even be upward of $100,000 if the case is complex. Because of the cost, a Chapter 11 plan should only be considered for a business or individual with sizeable assets.

If you are considering filing for bankruptcy, it is important to discuss your specific situation with a qualified bankruptcy attorney in your area.


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