Bankruptcy
Who Pays for Bankruptcy?
by Philip Ahn, Attorney
Many Americans are suffering financially because of their debts. In many cases, filing for bankruptcy could be the answer for those looking for debt relief. Before you decide to file for bankruptcy, you might be curious about who pays for bankruptcy and where your money goes.
Bankruptcies are paid for by the individual who is filing for bankruptcy. Court fees and attorney costs are paid by the filer who is also responsible for all of the non-dischargeable debts that bankruptcy does not clear. Creditors absorb the losses for the discharged debts.
Being aware of your responsibilities when filing for bankruptcy helps the process go much smoother. A bankruptcy attorney can use their experience to provide support. This supplemental information on bankruptcy provides vital information to assist you in making an informed decision. Unbundled Legal Help can put you in touch with a local bankruptcy attorney today.
Learn more about who pays for bankruptcy below.
What is Bankruptcy?
People or other entities who cannot afford to pay their debts can file for bankruptcy to seek relief from their creditors. There are three common types of bankruptcy (Chapter 7, Chapter 11, Chapter 13). Each type of bankruptcy has varying eligibility criteria and results.
How Much Do Bankruptcies Cost?
There isn’t a clear-cut answer to how much you’ll have to pay for your bankruptcy. The filing fees for Chapter 7 ($335) and Chapter 13 ($310) to the government are a flat rate, but attorney fees do vary.
The complexity of your case and where you live will affect your attorney costs. When filing for bankruptcy, you’ll need to receive credit counseling. Credit counseling services typically cost between $10 – $50.
After you file for bankruptcy, you must attend a course on debt education. These courses cost anywhere between $15 to $50 depending on your location. You could be eligible to have these course costs lowered or waived if you qualify.
What if I Can’t Afford Bankruptcy Fees?
You can apply to have your bankruptcy fee waived if you earn below 150% of the poverty line. Usually, you’ll be required to pay the cost if you earn above 150% of the poverty line in your state. A judge decides, based on the details of your application, whether to grant your fee waiver request.
What Happens to Your Debt When You File Bankruptcy?
The majority of individuals file for bankruptcy to eliminate or restructure their debts. Debts are handled differently depending on whether you file under Chapter 7, Chapter 11, or Chapter 13. However, an “automatic stay” is issued regardless of the bankruptcy chapter filed. That means that you won’t have to worry about debt collection activities like calls, lawsuits, repossessions, etc. while your case is processed.
Chapter 7
Chapter 7 bankruptcy is also known as a “straight” or “liquidation” bankruptcy. The government designed Chapter 7 to give debtors a clean slate. The government discharges the debts you cannot pay by the liquidation of your assets.
When you file Chapter 7, a trustee is appointed to sell your non-exempt assets and distribute the proceeds to creditors. If you file for Chapter 7 bankruptcy, you don’t directly pay your debts, because the money comes from the liquidation of assets.
A bankruptcy trustee will take any property you own, which isn’t exempt, and sell it or distribute the assets to your creditors. When you complete this process, you’ll receive a bankruptcy discharge, which erases all of the debts eligible for release.
The law exempts certain assets like retirement funds, primary residences (up to a certain value), tools necessary for trade or business, and personal vehicles from being liquidated for debt repayments.
Chapter 11
Chapter 11 allows individuals and businesses to liquidate or reorganize their debt. It differs from Chapter 7 and Chapter 13 bankruptcy cases because Chapter 11 typically involves more significant sums of money, assets, and debts.
Individuals rarely file Chapter 11, but if they do, it’s typically for two reasons. Individuals filing Chapter 11 usually desire to reorganize a real estate investment or reorganize unsecured debts that are too large to qualify for Chapter 13.
Chapter 13
Chapter 13 bankruptcy helps individuals reorganize their debts by catching up on their delinquent mortgage and car loan payments. Chapter 13 helps through an affordable repayment plan. When you complete your repayment plan successfully, you receive a bankruptcy discharge, wiping away qualifying financial liabilities.
You can erase more types of debt in Chapter 13 bankruptcy than in Chapter 7. Some of the most common debts that can be discharged in Chapter 13 bankruptcy but not in Chapter 7 include:
- Certain government fines and penalties, not including criminal fines
- Debts incurred for maliciously damaging someone’s property.
- Debts incurred to pay non-dischargeable tax obligations.
- Debts incurred as a result of a divorce, separation, or property settlement agreement.
- Debts included in a prior bankruptcy where the courts denied your discharge.
- HOA fees incurred after filing for bankruptcy
- 401(k) or other retirement account loans
What Kinds of Debts Can’t be Discharged?
The U.S. Bankruptcy Code stipulates 19 different categories of debts that bankruptcy proceedings cannot discharge. The specifics of each type of bankruptcy will vary, but the most common non-dischargeable obligations are:
- Alimony payments
- Certain unpaid taxes and tax liens but old federal, state, and local taxes may be eligible.
- Child support payments
- Debts for willful, malicious injuries, without just cause to another person or property. In Chapter 13 bankruptcies, this type of debt applies only to personal injuries, but property damage debts can be discharged.
- Debts for wrongful death or personal injury caused by the negligent debtor’s operation of a motor vehicle while intoxicated or driving under the influence of a controlled substance.
- Debts not listed in your bankruptcy filing.
Who Pays for Bankruptcy Fees and How Much Are They?
The person who files for bankruptcy pays the court filing fees. These fees partially fund the court costs and other costs of your bankruptcy case. The cost to file for Chapter 7 is $335 and $310 for Chapter 13.
If you want to file for bankruptcy, you’re required to receive credit counseling and debt education courses. These supplementary courses can cost up to 100$ in total and are necessary to complete your bankruptcy filing.
Does the Government Pay for the Discharged Debts in Bankruptcy?
A debt discharge happens when a debtor qualifies through filing for bankruptcy. Debtors are then no longer liable for discharged debts. Creditors also are no longer allowed to collect the debt. Creditors have to accept the losses of discharged debts. The government is not responsible for paying your discharged debts in bankruptcy.
How Much Does the Typical Bankruptcy Lawyer Cost?
Hiring a lawyer to represent your bankruptcy petition costs money. Most bankruptcy lawyers charge a flat fee for a simple bankruptcy, and others charge by the hour. What you pay for attorney fees will depend on which type of bankruptcy you file.
Usually, bankruptcy attorneys charge a flat fee for most of the filing costs and an hourly rate for extra services. Ensure that your contract states what is included in your flat rate and what isn’t.
Attorney fees for bankruptcy can start at $2,500 and climb much higher depending on the type of bankruptcy filed and the circumstances of your case.
Attorney fees in bankruptcy cases must be revealed to and accepted by the court. However, bankruptcy courts don’t fix the amount that attorneys charge. Attorneys can charge whatever they feel is reasonable given their experience and the details of your bankruptcy.
Some courts have a recommended maximum fee for certain types of bankruptcies, but bankruptcy attorneys can get approved for more when they indicate sound reasoning for charging more fees.
Contact Us Today to Learn About Our Affordable, Pay-As-You-Go Bankruptcy Services
With Unbundled Legal Help, you can hire an unbundled bankruptcy lawyer to handle the complex filing of your bankruptcy. Most bankruptcy lawyers won’t get started on your bankruptcy case until they received all of your payments in full. However, unbundled legal help offers more flexibility.
Fees for unbundled legal services start as low as $500 – $1500. Suppose your needs are more complex, or you require more comprehensive bankruptcy services. In that case, our network of unbundled lawyers offers flexible and affordable pay-as-you-go options so they can get started immediately.
Before you spend your hard-earned money on filing fees, get in contact with an unbundled lawyer in your area. Our bankruptcy lawyers also offer virtual consultations to help you begin the bankruptcy proceedings from the comfort of your home.