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The Cost of a Bankruptcy Explained

Bankruptcy is a legal status in the United States defined as a person's inability to pay off their prior debts to their creditors. There are six different types of bankruptcy in the United States, but the most common types are Chapter 7 and Chapter 13 bankruptcy. When someone declares Chapter 7 bankruptcy, all of their assets are liquidated; it is the simplest form of bankruptcy. A Chapter 13 bankruptcy however is more of a rehabilitation plan that enables debtors who have steady income to set up a payment plan to pay off their debts in a reasonable, yet practical time frame. Because of the intricacies of bankruptcy, consulting a lawyer is highly recommended.

Bankruptcy can be a very financially confusing and overwhelming time for anyone. Massive amounts of debt and relentless creditors calling at all hours does little to ease the anxiety caused from feeling like you are spinning out of economic control. Some feel like there is a stigma around declaring bankruptcy; that by declaring bankruptcy one is declaring failure. This is not true. Bankruptcy is complicated and was set up as a way to help people who find themselves, for one reason or another, with a tremendous debt that they just can't pay off. The debt could be from medical expenses, education costs, loss of a job, or any number of unexpected occurrences that happen to people every day.

Because bankruptcy is so complicated, it is highly recommended that you consult with a bankruptcy lawyer before declaring bankruptcy. The cost of a bankruptcy lawyer can vary greatly depending on the level of service someone is expecting, but the cost of not having a bankruptcy lawyer at all might be the greatest. The bankruptcy lawyer you choose should depend on the type of bankruptcy you are declaring.

Typically, bankruptcy lawyers usually charge no more than $1,500 for a simple Chapter 7 filing. Fees are an additional cost depending on the state, including a $245 filing fee, but if you pay more than $2,000 you are probably paying too much. Unlike a Chapter 7 bankruptcy, a Chapter 13 will require reorganization of debts and assets with hopes that all of the debts be paid off in a reasonable time frame. Because this type of bankruptcy filing requires intricate calculations of all your debts, an evaluation of your current income and an estimated evaluation of when you can pay off your debt, this type of filing is typically more costly. A standard Chapter 13 filing can range from $3000-$5000, plus court costs and fees.

Other forms of bankruptcy, such as Chapter 11 can cost as much as $10,000, but is usually only filed when a business or corporation is forced to declare bankruptcy. Individuals and families don't file for Chapter 11 bankruptcy. Chapter 15, similar to 11, can cost north of $10,000, but deals with international matters and complicated ancillary accounts. If a farmer or fisherman files for Chapter 12 bankruptcy, they can expect to pay around $5000.