Can I Afford Bankruptcy?

It might seem like a counterintuitive question, but if you are considering consumer bankruptcy, have you asked yourself whether you can actually afford to go bankrupt? We do not mean in a moral or ethical sense, but indeed in a financial sense. According to a recent article in the Chicago Tribune, this is a question that often arises right around the time of year when taxes must be filed. Why does tax season often coincide with a rise in personal bankruptcy filings in Oak Park and in other parts of Illinois? In short, “tens of thousands of people will soon get their tax refunds, and when they do, they will finally be able to afford the thing they’ve thought about for months, if not years: bankruptcy.”
To be clear, many Americans simply cannot afford to file for bankruptcy, and as such they wait until they receive a tax refund in March or April to file for Chapter 7 bankruptcy. Can you afford to go bankrupt?
Filing Fees for Consumer Bankruptcy
What are the costs associated with filing for bankruptcy? First, each type of bankruptcy has filing fees, which are as follows:
  • Chapter 7 bankruptcy: This common type of consumer bankruptcy is a liquidation bankruptcy that has a $335 initial filing fee, and if you later need to reopen the bankruptcy, it is an additional $260;
  • Chapter 13 bankruptcy: This is also a common form of consumer bankruptcy, but rather than asking the court to liquidate assets in order to discharge debts, the debtor develops a repayment plan, and the initial filing fee is $310 (and an additional $235 to reopen); and
  • Chapter 11 bankruptcy: While it is rare for consumers to file for Chapter 11 bankruptcy, this type of reorganization bankruptcy—similar to Chapter 13—may be the only option for consumers with so much debt that they cannot qualify for Chapter 13. This type of bankruptcy has a $1,717 initial filing fee, and an additional $1,167 to reopen a case.
There are additional fees if you decide to convert a Chapter 7 case to a Chapter 11 case ($922 fee), as well as to convert from Chapter 13 to Chapter 7, which is common in consumer bankruptcy matters and costs an additional $25. While a filing fee in the $300 range may not sound like a lot for a consumer bankruptcy case, it is important to take into account attorneys’ fees, as well. As the Chicago Tribune article points out, without the assistance of a lawyer, many consumers who file for bankruptcy make significant errors in their applications and end up without a discharge.
Costly Mistakes of Filing for Bankruptcy Without an Attorney
Consumers need to factor in the cost of a bankruptcy lawyer when considering the total cost of bankruptcy. As the article explains, “people who hire lawyers to help them file under Chapter 7 have their debts wiped away almost without fail, national filing data shows.” Indeed, “debtors with attorneys fare far better than those who go it alone.” As such, consumers should factor in the costs of hiring a lawyer, which often means that, without a tax refund check, it may be difficult if not impossible to file for bankruptcy in terms of financial affordability.
Consumer bankruptcy is extremely complicated, and it is important to have an advocate on your side with experience handling personal bankruptcy cases. An experienced Oak Park bankruptcy lawyer can help. Contact the Emerson Law Firm today.
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