How Much Will a Bankruptcy Lawyer Cost?
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What Will a Bankruptcy Lawyer Cost Me?
The decision to file for either Chapter 7 or Chapter 13 bankruptcy may come amidst one of the most difficult periods in a person’s life, where financial security is in limbo and every penny counts. Thus, the prospect of paying legal fees, particularly where someone is unsure of how such fees are determined, can be daunting, to say the least.
What Factors Cause Bankruptcy Costs to Vary?
The cost of filing for bankruptcy is not limited to attorney’s fees.
1) Filing Fee – Depending on the type of bankruptcy the individual is filing for, the filing fee will vary:
- Chapter 7: $306
- Chapter 13: $281
2) Trustee & Consumer Credit Counseling Fees – A trustee is an appointed individual who oversees the bankruptcy case. By federal law, these individuals can only collect compensation under Chapter 7, and cannot collect more than:
- 25 percent on the first $5,000 or less
- 10 percent on any amount in excess of $5,000 but not in excess of $50,000
- 5 percent on any amount in excess of $50,000 but not in excess of $1,000,000
- 3 percent in excess of $1,000,000.
Similarly, consumer credit counselors are organizations that help individuals negotiate more favorable fees and interest rates. They may not cost much, however monthly fees may add up over time, and their services should be budgeted for.
3) Attorney’s Fees – Unfortunately, due to the demographics of the various districts these lawyers serve, there is no single answer that can accurately determine exactly how much a bankruptcy lawyer will charge. Moreover, just the filing fee, what a lawyer charges will depend on whether the individual is filing under Chapter 7 or Chapter 13.
What Goes into Determining a Lawyer's Fees?
The primary reasons for the large disparity in the cost of bankruptcy are:
- Complicated nature of case
- Income of client
- Whether filed under Chapter 7 or Chapter 13
Bankruptcy lawyers typically charge on a flat fee or hourly basis. Naturally, the more complicated the case, the more the lawyer will charge (with the exception of Chapter 13). Moreover, if a client has a steady income, they should expect to pay more than an unemployed individual with little or no assets. Finally, Chapter 7 and 13 follow very different guidelines regarding how much a lawyer can charge.
- Chapter 7: Under Chapter 7, attorneys tend to base their fee on how much time and effort will go into preparing the papers. Unlike Chapter 13, where the courts limit the permissible fees, the cost for Chapter 7 is left up to the lawyer preparing the case. Expect to pay anywhere between $500-$4,000. Fees on the lower end of this spectrum are not indicative of lower quality representation.
- Chapter 13: Under Chapter 13, bankruptcy courts limit how much an attorney can charge for their services, and if an attorney must justify why their rate should be increased (e.g., additional work needs to be done). Moreover, the entire fee will not be required upfront. Typically, the cost for a Chapter 13 bankruptcy will range anywhere between $2,000-$6,000.
Regardless of the chapter, most personal bankruptcy attorneys will charge a flat rate, and for one simple reason: certainty. People filing for bankruptcy have enough stress and uncertainty in their life, and their lawyer understands this. The last thing anyone needs is to wonder if that 15-minute phone call will be costing them money. Certainty works both ways: most lawyers handling bankruptcy cases know exactly what work will go into the case, and how long they will need to work on it.
Why Would Lawyers Charge an Hourly Fee?
Some bankruptcy lawyers still work off a traditional hourly rate. Hourly rates vary greatly, depending on the locale and relative ability of the lawyer. Expect to pay anywhere $75-$400 an hour for a lawyer’s time. A lower hourly rate is in no way indicative of the quality of representation, but simply what the lawyer has determined their time is worth.
Regardless of the hourly fee, the overall cost should not vary too much from the figures quotes above.
As mentioned earlier, most bankruptcy lawyers work on a fixed fee. However, a minority will still have an hourly option to handle settling matters after the filing is complete, such as discharge or further proceedings where the client needs representation, such as modifying a repayment plan. The purpose for this is to provide a separate accounting and to distinguish the more simple, common bankruptcy filing from additional, perhaps more complex, legal work.
Is One Fee Structure Best?
Not in the slightest. In fact, what fee is charged depends more on the type of bankruptcy you are filing for and the area you live in than it does on the fee structure the lawyer uses. Regardless, it is important to understand how fees and billing works when consulting with bankruptcy lawyers. Don’t be afraid to ask an attorney how they arrived at the level of their fee, and if there is an additional hourly cost for other issues that may arise.
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Last Modified: 10-17-2014 03:15 PM PDT
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