How Much Does Chapter 13 Bankruptcy Cost?

How Much Does Chapter 13 Bankruptcy Cost

Apparently, debtors find the lack of financial footing the main reason why they have to file for bankruptcy. However, filing for a bankruptcy case is not free and it’s certainly not without a price to pay. Debtors who wish to file for a bankruptcy case has to complete a debt management course. As of the new bankruptcy laws set in 2005, debtors also now have to undergo a means test to determine the type of bankruptcy that is best to file for their situations. And while it’s okay to file for a bankruptcy case even without consulting a bankruptcy lawyer, doing so is an action not recommended by experts.

Bankruptcy cases can be a tough and complex process and the best way to handle these complexities is through the help of bankruptcy attorneys. But to do that, then a debtor will have to hire an attorney. And when hiring an attorney, a debtor must think of paying for lawyer fees aside from the filing charges set by the court.

The importance of bankruptcy lawyers

Hiring a bankruptcy lawyer might sound like an expensive move for debtors but they are an integral part of every bankruptcy case. Without the proper guidance of a bankruptcy lawyer, a debtors might make a number of unwise decisions or commit mistakes that might jeopardize the filing of the bankruptcy case in the process. Since debtors go bankrupt due to financial distress, it is pretty understandable why hiring a bankruptcy lawyer is often overlooked. Right now, filing for a Chapter 13 bankruptcy case without the hassle of the attorney fees only amounts to $310, far higher than the former $281 fee. The said fee is used to pay the court clerk for the purpose of filing and administration and can still be waived when the debtor’s income is proven to be less than 150% of the income poverty line. With attorney fees however, the amount could go up to thousands of dollars, give or take a few.

The bottom line is that, bankruptcy cases ought to have more success rate with the help of a bankruptcy attorney than those people who file “pro se” or without the help of a bankruptcy lawyer.

Flat fees and hourly fees

Bankruptcy lawyers either charge their clients flat fees or hourly fees. With a flat fee, a debtor is given a going flat rate or a fixed amount regardless of how much time the attorney spends on the bankruptcy case. For most bankruptcy cases, flat fees are the norm between lawyers and debtors. Most of the time, bankruptcy lawyers charge debtors a flat fee then charges hourly for extra services required to go through the bankruptcy process.

The role of the bankruptcy court in setting fees

Unlike popular belief, the court is not the one responsible in setting the bankruptcy fees. What the court does is to make sure that the fees set by bankruptcy attorneys are reasonable. The Bankruptcy Code of the United States demands that attorneys who file their cases under Chapter 13 must disclose their fees to the bankruptcy court and subject it for review and approval. If the court finds the fee reasonable, then the attorney can proceed with charging the debtor the said fee. Otherwise, the court might order the attorney to refund a portion of the fee to the debtor.

“No-Look” Fees

There are some cases however when attorney fees need not be reviewed by court. This happens when the attorney follows the fee set by the court which is termed as a “no-look” or is presumptively reasonable by court. Right now, the standard no-look fee suitable for Chapter 13 cases is around $3,000. A little more than that amount is still acceptable although some attorney might charge higher than the no-look fees. Take some of these states for example, San Francisco’s no-look fees goes for $3,500 while North Carolina charges $3,700. In Central Alabama, the presumptively reasonable attorney fee is $2,750 with any extra fees to be examined by the court. North Dakota even has lower no-look attorney fees at $1,500 while Maine charges as high as $4,950 for their presumptively reasonable attorney fees.

Other fees involved in Chapter 13 bankruptcy cases

Aside from the filing and administration fee of $310, debtors may also have to pay around $70 for completing a course in credit counseling and debt management. As for the attorney fees, Chapter 13 bankruptcy cases offer debtors some advantage when it comes to payment since they do not have to pay the total amount of fees they owed their attorneys upfront. Instead, only a portion of the attorney fees is required prior to the filing of the case and the remainder of the said fee will be included in the repayment plan.

However, debtors should take note that there are cases when filing for a bankruptcy and going through the bankruptcy case becomes a complex process. That is, there is more to bankruptcy than filing. Bankruptcy attorneys might charge higher fees when the time it takes to process the bankruptcy case takes longer than necessary. Take for example the objection of the bankruptcy trustee to property valuations. The objection should be resolved in court which in turn will require the expertise of the bankruptcy attorney involved. The attorney will then have to prepare a defense in behalf of the debtor and appear in court. In short, the cost of filing and processing a Chapter 13 bankruptcy becomes more expensive when court time is extended.

Paying fees for Chapter 13 bankruptcy cases

The fees that the debtor has to pay up front when filing for a Chapter 13 bankruptcy case is the filing and administration fee and the payment required for the debt management course. As for the attorney fees, half of the agreed amount can be paid prior to the settlement of the bankruptcy case and the rest of the unpaid fees will be paid through the debtor’s Chapter 13 repayment plan. In short, the debtor’s bankruptcy attorney in this case will be treated like a debtor. There are also cases when a debtor can negotiate with their lawyers as to how the fee will be paid. Some attorneys allow their clients in debt to pay nothing up front and just include the full fee in the repayment plan.