Cost Of Bankruptcy

Bankruptcy provides a tangible benefit for people who file.  These can best be summarized as:

  • (1) receiving a discharge from debts they would normally be required to pay; and/or
  • (2) being allowed to restructure certain debts and pay repay them on different terms.

However, like anything in life in order to get something (a benefit) you have to give up something (your cost).  This post briefly describes what we consider THE COST OF FILING BANKRUPTCY. THE OUT OF POCKET COST Bankruptcy cost money.  There are attorney fees and court filing fees.  The cost can very tremendously by the complexity of the case.  However, below is general guideline:

  • Chapter 7:  generally cost from $1500 to $2,000 for a basic consumer bankruptcy case.  Chapter 7’s are less expensive than Chapter 13 because they take less time to complete.  However, the downside is that the legal rules require us to get our attorney fees up front.  Our office can work with you on payments.  But we generally don’t physically file a case until we get the legal fee.  Don’t be fooled by ads saying $500 — that is for a Chapter 13 and is what we consider to be a bait and switch to get you into their office.
  • Chapter 13:  can be filed for $500 down (sometimes it is more up front depending on complexity).  Chapter 13 is less expensive up front — but more expensive overall.  Generally the legal fees can total $3500 and sometimes higher for more complicated cases.  However, keep in mind that your legal fees are paid from the trustee payments that you pay into the Chapter 13 trustee.  This means they are spread out over time.  Also, keep in mind that your Chapter 13 trustee payments are generally the same no matter how much your attorney is paid.  The attorney is paid to the detriment of unsecured creditors.

HOW PEOPLE VIEW A BANKRUPTCY I believe the other “cost” of Bankruptcy can really be broken down into how other people view the Bankruptcy.  Most commonly this is just your need to gain new credit after the Bankruptcy case is complete.  The system of getting new credit goes hand in hand with the credit reporting system and your credit score. This metric will vary greatly depending on the individual.  I always tell people:  “the value of your credit score to you is dependent on your need for new credit in the future.”  So if you already have a mortgage and car payments with a decent rate then your need for credit is low and your cost will be less.  If you need a new car soon or want to buy a house then your cost could be greater.  I could write a book about this topic.   But I will break a down a few generally rules for how people view a Bankruptcy.  This is by no means a guarantee for you — I cannot tell people how to think.  However, this has been my experience through my clients in the majority of cases.

  • You can buy a new car your bankruptcy discharge if you have verifiable income to document that you can make the payments (of course your interest rate will be higher)
  • You can buy a house after 2 years of your bankruptcy discharge.  You also need the other factors:  down payment, income, etc
  • You can build your score up to low 700’s within a year.  This will not happen on its own.  You will need to get new credit (which you can) and use it responsibly
  • You can still rent an apartment or house.  Yes, you may have to give more of a deposit and they will likely want to verify income.
  • You can still get a job or get promoted.  Most employers don’t care — just don’t lie if they ask you.

 

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