The goal of bankruptcy is to provide relief to people or companies who owe money to creditors. The purpose of bankruptcy is to give debtors the ability to renegotiate their debt agreements, lower the amount owed, or in some situations, completely remove their debt.
While bankruptcy may seem like a fresh start for someone who is having trouble paying their debts, it may be a costly, drawn-out process with numerous payment considerations. The steps in this process, together with the fees and expenses related to it, are explained in detail below.
Fees for Lawyers in Business Bankruptcy
The cost of hiring an attorney may discourage people who are going through bankruptcy or other financial difficulties from seeking legal assistance. It is crucial to understand various “fee structures” and how your business or family might use them.
What Sources May I Consult for Information About Bankruptcy Fees?
Individuals with monthly incomes under $6,575 are eligible for Chapter 7 bankruptcy.
For those with secured debt totaling $1,010,650 and unsecured debt totaling $336,900, Chapter 13 is an option.
If a person exceeds these limits, they must file for Chapter 11 bankruptcy for their business.
What Distinguishes Chapters 7, 13, and 11?
Corporations, partnerships, and limited liability entities are all covered by Chapter 11. (LLCs). Due to the potential for more extensive investigation in their work, attorneys are compensated on an hourly basis.
Because they are reasonably straightforward and allow for cost estimation, Chapter 7 and Chapter 13 cases are billed at a flat, fixed rate.
Why Is the Fee Structure Different?
In Chapter 11 bankruptcy, the objective is to persuade the court to take a plan of reconstruction into consideration. This needs an attorney to, if required, spend hours sorting through business records. In contrast to Chapter 7 and Chapter 13, the quantity of work required for Chapter 11 cases is uncertain; hence attorneys’ fees are computed on an hourly basis.
What Elements Cause the Variation in Bankruptcy Costs?
It’s crucial to understand the cost of hiring an attorney before declaring bankruptcy. The usual costs of Chapter 13 bankruptcy, Chapter 11 bankruptcy, and Chapter 7 bankruptcy are listed below.
Prior to learning how much each bankruptcy would cost, it’s critical to comprehend how the various varieties of bankruptcy differ from one another.
- Chapter 7: Chapter 7 bankruptcy enables a debtor to get rid of any obligation that can be legally discharged. The eligibility requirements, the bankruptcy filing process, and the kinds of debt that can be discharged are all governed by specific Chapter 7 bankruptcy rules. A significant portion of bankruptcy involves determining the debtor’s eligibility. A “means test” will be administered to any prospective filer.
- People who can pay back their debts are ineligible to petition for Chapter 7 bankruptcy under the means test. Based on their income and other assets, the means test evaluates how much the debtor can repay the creditors. The debtor may occasionally fail the means test and not be eligible for Chapter 7 bankruptcy if they have extra money each month after paying their creditors. A debtor may file a Chapter 13 bankruptcy, which restructures the debt into a payment plan if they are not eligible for a Chapter 7 bankruptcy. A more thorough description of Chapter 13 bankruptcy is provided below.
- Chapter 13: Chapter 13 is the form of bankruptcy that is restructured or reorganized. People who have greater salaries or who are ineligible for Chapter 7 bankruptcy frequently choose this option. Chapter 13 bankruptcy is typically used by those who want certain assets shielded from creditors. The debtor is able to restructure the debt under Chapter 13 and make manageable payments.
- Through this procedure, some debts may be completely dismissed while others must be entirely repaid within the bankruptcy payment plan’s time term. According to a payment plan, the debtor will pay off a specific amount of debt each month, based on the value of the assets and what the court determines.
The way the debt is reformed or restructured can depend on a variety of circumstances. These consist of:
- What sort of debt you wish to be covered (Even after declaring bankruptcy, some debts, such as student loan debt, cannot be eliminated).
- Your previous interactions with the creditor that you owe money to
- Length of time required to pay off the debt
There Are Many Different Fees
- Filing Charge – Depending on the type of bankruptcy filed, there may be a filing fee. There are three types of bankruptcy: Chapter 7, Chapter 11, and Chapter 13. The average cost of a bankruptcy filing fee is:
- Chapter 7: $335
- Chapter 11: $1,717
- Chapter 13: $310
- Trustee & Consumer Credit Counseling Fees – A trustee is in charge of looking after the debtor’s assets. The specified costs for a bankruptcy trustee are as follows:
- 25 percent on the first $5,000 or less, 10 percent on amounts over $5,000 but under $50,000, 5 percent on amounts over $50,000 but under $1,000,000, and 3 percent on amounts over $1,000,000 overall.
- Consumer credit counselors are businesses that assist people in negotiating lower fees and interest rates and provide financial education. Although they are not expensive, monthly costs might mount up over time, so it is advisable to budget for these services.
- Legal Fees – Attorney’s fees in bankruptcy have a wide range and depend on a number of things because bankruptcy is a broad and complicated subject. The jurisdiction where the bankruptcy is filed, and the attorney’s preferred fee structure determine how much an attorney bills for their services. Because these responsibilities will endure even after the bankruptcy action dismisses all other debts, it is crucial to be aware of all potential costs before filing for bankruptcy.
How Are Bankruptcy Attorneys’ Fees Determined?
The cost of hiring a lawyer to represent a client in bankruptcy proceedings can vary depending on a number of circumstances, including the following:
- Depending on the value of the assets and other case details, the complexity of the bankruptcy
- The client’s monthly income in relation to the debt they are saddled with
- What kind of bankruptcy is being commenced
- Where in the world the bankruptcy is being filed. Based on the typical fee for other bankruptcy cases in the same region, some larger metropolitan law firms may bill more.
Due to the differences in application and subject matter, the fee schedule may change depending on whether a customer applies for Chapter 7 bankruptcy or Chapter 13 bankruptcy.
Why Would Lawyers Bill by the Hour?
The majority of bankruptcy attorneys bill by the hour. This will give clients who are under significant financial strain some degree of process cost certainty. However, in some situations, bankruptcy attorneys continue to bill by the conventional hourly rate.
Should I Speak with a Bankruptcy Attorney?
You should speak with an experienced bankruptcy lawyer in your area if you’re thinking about declaring bankruptcy for your company. Your attorney will explain your legal rights and alternatives to you and walk you through the procedure, making sure you don’t fall into any unneeded traps. Use LegalMatch to find the right bankruptcy lawyer for your needs today.