How Much Do You Pay Monthly for Bankruptcies?

Bankruptcy is a legal process providing financial relief for individuals and businesses overwhelmed by debt. While it offers a path toward a fresh financial start, it involves financial obligations individuals should understand. Considering bankruptcy means evaluating the benefits of debt discharge and the associated costs. These costs are a primary concern, encompassing upfront fees and, in certain types of bankruptcy, ongoing monthly payments. Understanding these financial commitments helps determine if bankruptcy aligns with one’s financial situation and goals.

Understanding Upfront Bankruptcy Costs

Initiating a bankruptcy case involves several initial financial outlays, typically incurred before or at the time of filing paperwork with the court. Understanding these upfront expenses is important for anyone considering this path to debt relief.

One of the first costs is the court filing fee, which is a mandatory payment to the bankruptcy court. As of late 2024, the filing fee for a Chapter 7 bankruptcy is $338, while a Chapter 13 bankruptcy costs $313. For individuals pursuing Chapter 7, these fees can sometimes be waived if their income falls below 150% of the federal poverty guidelines, or they may be paid in installments.

Most individuals hire a bankruptcy attorney to navigate the legal process, and attorney fees often represent a significant portion of the upfront cost. These fees vary based on the attorney’s experience, location, and case complexity. For a Chapter 7 bankruptcy, attorney fees range from $1,000 to $3,500. These fees are required to be paid in full before the Chapter 7 case can be filed.

For Chapter 13 bankruptcy cases, attorney fees are higher due to the extended duration and increased complexity. These fees range from $2,500 to $6,000. A key difference is that a portion, or all, of the Chapter 13 attorney fees can be included and paid through the monthly repayment plan after filing. Courts have “no-look” fee guidelines for Chapter 13, which are amounts presumed reasonable for attorney services within a specific jurisdiction.

Federal law mandates individuals complete two educational courses: a pre-filing credit counseling course and a pre-discharge debtor education course. These courses cost between $10 and $50 each. Approved providers are required to offer services based on an individual’s ability to pay, including fee waivers or reduced rates for those with limited income.

The Nature of Monthly Payments in Chapter 13

Chapter 13 bankruptcy involves an ongoing repayment plan, allowing individuals with a regular income to reorganize debts and make regular payments to a bankruptcy trustee over a set period. The primary purpose of Chapter 13 is to help debtors keep property, such as a home or car, while catching up on overdue payments and addressing other debts through a manageable plan.

The calculation of these monthly payments is unique to each case and depends on several factors. These include the debtor’s disposable income, which is determined by subtracting allowed living expenses from their current monthly income. The amount of debt to be repaid, particularly priority debts like certain taxes and child support, and secured debts like mortgage or car loan arrears, also plays a substantial role. The plan must also satisfy the “best interests of creditors” test, ensuring that unsecured creditors receive at least as much as they would in a Chapter 7 liquidation.

The monthly payments cover a range of obligations. The bankruptcy trustee, who oversees the plan, distributes these funds to various creditors. This includes secured creditors to address past-due amounts and maintain current payments on assets the debtor wishes to keep. Priority unsecured creditors, such as government entities for certain taxes or individuals owed domestic support obligations, receive full repayment through the plan. A portion of the payments also goes to general unsecured creditors, like credit card companies or medical providers, at a reduced percentage of the original debt.

Attorney fees for the Chapter 13 case are incorporated into these monthly payments, allowing debtors to pay legal costs over time rather than all upfront. The bankruptcy trustee’s administrative fees are also deducted from the monthly payments. These trustee fees represent a percentage of the funds disbursed, with a maximum cap of 10%.

The duration of a Chapter 13 repayment plan is either three or five years. If the debtor’s income is below the state’s median income for their household size, the plan lasts three years. If the debtor’s income is above the state median, the plan extends for five years. The success of the Chapter 13 process relies on consistent adherence to these monthly payments throughout the plan’s duration.

Other Potential Costs to Consider

Beyond the primary upfront and ongoing Chapter 13 payments, individuals may encounter other costs during their bankruptcy. These additional expenses are important to acknowledge.

Trustee fees, while integrated into Chapter 13 monthly payments, are also relevant in Chapter 7 cases. In Chapter 7, the trustee receives a fixed administrative fee of $60 from the filing fee. A commission may also be earned if assets are liquidated and distributed to creditors. However, most Chapter 7 cases are “no-asset” cases, meaning no non-exempt assets are distributed, and no significant additional trustee commission is paid.

Additional court fees or attorney fees arise if there is a need to file motions with the court or amend bankruptcy schedules after the initial filing. For instance, a motion to reopen a closed bankruptcy case incurs a court fee ranging from $235 to $260, depending on the chapter. An attorney charges for their time to prepare and file such motions or amendments.

If a debtor chooses to reaffirm a secured debt, such as a car loan, to keep the property and remain personally liable, minor associated costs may arise. While legal assistance is not always required, some individuals incur attorney fees if they seek representation for the reaffirmation agreement process. These costs are separate from the initial attorney fees covering the main bankruptcy filing.