How Much Does It Cost to File for Bankruptcy?
July 5, 2024
Bankruptcy is a legal process designed to help individuals or businesses eliminate or repay their debts under the protection of the federal bankruptcy court.
Because bankruptcy can have long-term financial and legal consequences, you must consider all factors before proceeding.
Filing for bankruptcy involves significant costs. If you're considering it, the Law Offices of Herbert K. Ryder LLC is here to help you make an informed decision. Let's break down the expenses associated with filing for bankruptcy.
Types of Bankruptcy
There are two main types of bankruptcy for individuals—Chapter 7 and Chapter 13. Knowing which type fits your situation is the first step in understanding the associated costs.
Chapter 7 Bankruptcy
Also known as "liquidation bankruptcy," Chapter 7 involves selling most of your assets to pay off as much debt as possible. Any remaining unsecured debts are typically discharged.
Filing for Chapter 7 bankruptcy usually involves court fees and attorney fees. These costs vary depending on the complexity of your case and your location.
Not everyone qualifies for Chapter 7. You must pass a "means test," demonstrating that your income is low enough to warrant liquidation.
Chapter 13 Bankruptcy
Also known as "reorganization bankruptcy," Chapter 13 requires you to establish a repayment plan based on your income and expenses. You can keep your property while you pay back all or a portion of your debts in manageable installments over a three to five-year period.
Costs of Bankruptcy Filing
Filing for bankruptcy involves different kinds of costs:
Filing Fees
Both types of bankruptcy require a filing fee. As of 2024, the fee for Chapter 7 is approximately $335, while the fee for Chapter 13 is around $313. These fees are to be paid to the court at the time of filing.
If you cannot afford the filing fee, you may be eligible for a fee waiver or may be allowed to pay the fee in installments. This option can provide some relief but still requires careful consideration and approval from the court.
If the filing fee is waived or paid in installments, you must adhere to the court-specified payment schedule to avoid any complications in your bankruptcy case.
Attorney Fees
Hiring an attorney is highly recommended when filing for bankruptcy. An attorney can provide valuable guidance throughout the process, ensure that all paperwork is filed correctly, and help you meet deadlines. This significantly increases your chances of a successful outcome.
Legal fees can vary widely based on the complexity of your case and your location. For Chapter 7, attorney fees can range from $1,000 to $3,500. Chapter 13 cases generally cost more, ranging from $2,500 to $6,000. These fees cover legal advice, document preparation, and representation in court. Some attorneys offer payment plans to make these fees more manageable.
Credit Counseling and Debtor Education
Before filing for bankruptcy, you must complete credit counseling from an approved provider. These courses are designed to help you understand your financial situation and prevent future financial problems. They are mandatory and must be completed for your bankruptcy to be discharged.
They typically cost around $50. After filing, you must also complete a debtor education course, which costs about $50 as well. These costs may vary depending on the provider you choose. Some providers may offer these courses at a reduced rate or even for free depending on your financial situation.
Other Potential Costs
Depending on your case, additional costs may apply, such as fees for obtaining copies of your credit report or charges for appraisals of your assets. These can also include administrative fees, costs for mailing documents, and expenses related to attending court hearings.
You may incur expenses for financial management courses, which can add to your overall costs. Additionally, there could be fees associated with hiring a trustee to manage your case, which may vary depending on its complexity. Make sure to include these potential costs in your budget to prevent any surprises.
Bankruptcy Laws in New Jersey
New Jersey has specific laws and exemptions that can impact your bankruptcy case.
State Exemptions
New Jersey allows you to use either federal or state bankruptcy exemptions to protect your property. These exemptions include your home, car, and personal belongings.
Homestead Exemption
New Jersey does not have a state-specific homestead exemption. However, you can use the federal exemption, which allows you to protect a certain amount of equity in your home.
Personal Property Exemptions
You can protect a limited amount of personal property, such as clothing, furniture, and tools of the trade, using either state or federal exemptions.
Wildcard Exemption
New Jersey has a wildcard exemption that allows you to protect any property of your choosing, up to a certain value, which is useful for items not covered under other specific exemptions.
Tenancy by the Entirety
If you own real property jointly with your spouse under tenancy, New Jersey law may protect it from creditors in a bankruptcy case, providing additional security for jointly owned assets.
Pros and Cons of Filing for Bankruptcy
While bankruptcy can provide relief from overwhelming debt, it’s important to consider the pros and cons:
Pros
Debt relief: Bankruptcy can eliminate most unsecured debts.
Fresh start: It provides an opportunity to rebuild your financial life.
Protection from creditors: Filing for bankruptcy can stop collection calls, lawsuits, and wage garnishments.
Automatic stay: Once you file for bankruptcy, an automatic stay goes into effect, halting most collection activities and giving you room to manage your finances.
Asset retention: Depending on the type of bankruptcy and exemptions, you may be able to keep essential assets like your home and car.
Structured repayment plan: In Chapter 13 bankruptcy, you can repay your debts over time with a structured plan, which can make large debts more manageable.
Cons
Credit impact: Bankruptcy will negatively impact your credit score and remain on your credit report for up to 10 years.
Loss of property: Depending on the type of bankruptcy, you may lose some of your assets.
Public record: Bankruptcy filings are public records, which means your financial situation becomes public knowledge.
Difficulty obtaining credit: A bankruptcy filing can make it challenging to obtain new lines of credit or loans, or they may have higher interest rates.
Impact on employment opportunities: Some employers conduct credit checks as part of the hiring process. A bankruptcy on your record could affect your job prospects.
Long-term financial planning: This includes saving for retirement or purchasing a home, as it can take time to rebuild credit and regain financial stability.
Consult a Bankruptcy Lawyer in Somerville, New Jersey
If you are considering bankruptcy, it’s important to work with an experienced attorney who can guide you through the process. Herbert K. Ryder is a trusted name in Somerville, New Jersey.
Herbert is an attorney who likes to explain the reasons behind every step, helping clients avoid future pitfalls. With experience ranging from large corporations to small businesses, he brings a wealth of knowledge to every case. His approachable manner and calm demeanor reassure clients. Call him today to make a significant difference to your bankruptcy case.