Weighing the Costs of Filing a Chapter 7 Bankruptcy
For debtors with high amounts of unpaid loans, paying off creditors using their savings is not the only option. In fact, borrowers who own valuable and nonexempt property may choose to file for a Chapter 7 bankruptcy. However, choosing this type of bankruptcy involves weighing both the financial and indirect costs on the part of the borrower.
The Indirect Cost of Filing for Bankruptcy
Also known as “liquidation bankruptcy”, Chapter 7 filers give the court full jurisdiction over all their properties–except for those that qualify for exemptions under bankruptcy laws. These properties will be handed over to a “trustee” appointed by the bankruptcy court, who will then sell the assets and use the proceeds to pay your creditor what you owed. When all assets are liquidated, a portion of the funds goes to the trustee’s commission. If you decide to file for bankruptcy, you need to accept that the bankruptcy will hurt your credit score in the next 10 years.
Debtors who are not willing to lose their properties or those that are judgment-proof (meaning they do not have enough property to pay back creditors), may consider filing for Chapter 13 bankruptcy instead. This will give them the opportunity to have their debts discharged or to modify the terms in their contracts or leases and have a court-approved alternative repayment plan for loans.
Declaring bankruptcy comes with a price, but it also offers the borrower numerous advantages. First, it eliminates dischargeable debts and gives debtors a fresh start. Moreover, the filer would not have to worry about making a plan to repay his debts. Another advantage is that the bankruptcy process is usually completed within three months, providing fast debt relief. Lastly, although some properties will be lost, you may still keep exempt assets such as family heirlooms, insurance, and divorce settlement proceeds.
In bankruptcy cases, the debtor will also have to prepare for legal, court, and counseling fees on top of accepting the loss of personal possessions.
Fees paid to the Court
When you file for this bankruptcy chapter in the United States, you have to pay court filing fees of around $300. This covers the payment for trustees who oversee and liquidate your seized properties. In some instances, an installment plan is allowed, or a fee waiver is given to a debtor who cannot afford this fee. This usually applies to a borrower whose income is below the state poverty threshold.
Under U.S. Bankruptcy laws, a debtor is required to attend a credit counseling session within 180 days before he files for bankruptcy, and attend another one on debtor education before his debts are wiped. He must enroll in a class offered by an agency approved by the U.S. Trustee Program and personally pay for up to $50 in fees per session. Free or discounted classes may be offered if the borrower is financially incapable of paying on his own.
The Cost of Getting Legal Advice
There is no fixed amount for bankruptcy lawyer fees, although this would usually range from $1,000 to $2,000. Out of all the fees involved when considering bankruptcy, this is usually the most expensive as your legal representative shall be with you from the time you are choosing between the types of bankruptcy to file for, until after your case was filed.
The good news is that not all bankruptcy lawyers require filers to pay their full fees upfront. For instance, the Northwest Debt Relief Law Firm, which provides legal services to the states of Oregon and Washington, offers an easy payment plan. The law office only collects pre-file bankruptcy attorneys’ fees prior to filing and will divide the remaining amount into monthly payments. Most law firms would also offer a free initial consultation, allowing debtors to compare prices.
If you believe that bankruptcy filing is your best option for a restart, you must be ready to face its costs when you file for a Chapter 7 bankruptcy. You must also understand that before getting a bankruptcy discharge notice, there are procedures you need to follow such as passing the means test (your average monthly income must be not greater than the median income in your state), meeting with a credit counselor, gathering important documents, and attending a meeting with your creditors.
Since filing bankruptcy involves different phases, it would be best to have an attorney to guide you through the process and help you protect your properties. If you are in need of bankruptcy attorney services, you may contact the Northwest Debt Relief Law Firm here to schedule a case evaluation and get you started with debt relief.