The economy has hit a low point. You were offered a hundred credit cards well before you were at a reasonable age to understand what exactly that meant. You have a dead end job that pays you a laughable wage because, well, the economy is in a low point and they can (although even when the economy is good, you know they will come up with some excuse). The bills have stacked up and between credit collectors threatening to sue and the electricity going on and off so often your neighbors think your house is a giant pinball machine. Maybe about now is the time to file for bankruptcy. Good idea in theory, but with your bank account at an all time low, there remains a burning question… just how much does it cost to go bankrupt?
Well, the good news is, it isn’t all that hard to find out how much, per se, but the bad news is that it can be kind of complicated. For one, you can’t just go to court and yell “I declare myself bankrupt” and then wander out free of debt. While awesome in theory, there is actual work that has to be done and papers to be signed and money to be spent and you would end up just becoming the traditional Christmas Party story for the clerks at the courthouse. There are fees for even filing for bankruptcy and then on top of that, you need a lawyer and of course there is a fee there. So what do you file? Chapter 7? Chapter 13? What’s the difference?
In Chapter 7 Bankruptcy you are asking the court to wipe your slate clean of all debts. While this sounds like the best deal, there are some pitfalls. For one, it usually costs a little more to file chapter 7 than chapter 13. Court fees alone for Chapter 7 is $306 dollars and regardless of how much debt you have, most lawyers are going to require that money upfront. In Chapter 7, you are basically liquidating your worth back to zero with all debtors. Sometimes a court will deem that in an effort to reclaim some debt owed that certain items of yours may be seized. If you own a new vehicle, it is likely to be in some jeopardy here, but only if the amount of its worth is quite high. If you have a beat up old jalopy, there is little fear there. Jewelry, usually over the $1000 mark is also a possibility for the courts to seize. Basically anything that is worth a couple grand and isn’t absolutely necessary for you to make your living is at risk during a chapter 7. Now, usually, if you are in a position of filing for Chapter 7, the chances of you having much that could get seized by the courts is fairly low, but even still it is a risk you would be taking.
Now, aside from the aforementioned court fees, there are also lawyer fees to tack on as well. Lawyers can charge different prices at any time, but a general rule of thumb is in larger metro areas, the price will be higher while in lower populated areas the price will be lower. On average, the price of a chapter 7 is around $1,500 dollars.
In Chapter 13, you are not liable to have anything seized by the court, but you are responsible for a payment plan. Essentially the court sets a price, which averages out to about $3000, but could be as high as your debt owed, and sets up a payment plan with which you can pay back at least some of your debt. This route is easier on your credit rating as you are at least paying some debt back, but if you are in a true financial hardship can be a little more difficult to handle. The court fee for filing a chapter 13 is a little lower at $281 dollars, and usually a lawyer will file for you as long as you can come up with that amount. Other than that, the lawyer fees are usually included in the bankruptcy settlement so part of what your paying off is the lawyer. There is an added charge however in credit counseling which is routinely set up as part of the requirement of filing for bankruptcy. An added charge of around $50 to $100 dollars can be expected plus a Saturday or two of your time.
So how much does it cost to go bankrupt? Turns out it’s usually anywhere from $1500 to $3500 and could be more. If you owe less than that in debt it might just be better off to try to set up payment plans with them rather than go through the rigmarole of the courts. However if there is no other choice, bankruptcy can at least give you a chance to start over.