Cost of Going Bankrupt
For many, filing bankruptcy is a last resort is a series of steps taken to try and deal with accruing debt. Often the decision comes down to a risk/reward analysis, having to weigh the costs of taking such a drastic step against the costs of continuing down a seemingly endless road of missed payments and mounting interest. So just what are those costs? Are they strictly financial or are there other equally serious, but non-financial, consequences?
Type of Bankruptcy
The first decision a person must make is just what they are going to file. For most individuals there are two kinds of bankruptcy filings, Chapter 7 and Chapter 13. Chapter 7, or a “liquidation bankruptcy” wherein all nonexempt property is forfeited, is subject to a $245 case filing fee, a $46 miscellaneous administrative fee, and a $15 trustee surcharge, for total filing fees of $306. Chapter 13, or a “reorganization bankruptcy” wherein certain valuable property can be retained provided you make sufficient arrangements with debt holders, is subject to a $235 case filing fee and a $46 miscellaneous administrative fee, for total filing fees of $281. While it is possible to apply for fee waivers on either type of bankruptcy, it is completely at the judge’s discretion and highly unlikely in the case of a Chapter 13.
In either case, while it is possible to file without an attorney, or “pro se”, it is highly discouraged. While your odds of success when filing “pro se” in a Chapter 7 are just slightly less than 50%, they are less than 5% in a Chapter 13. In those situations, your case is thrown out and you are saddled permanently with your debt. Nationally, the costs of retaining an attorney for a Chapter 7 are around $1250. For Chapter 13, where the process is more complex and a person is trying to hold on to certain properties, the average costs is around $3000 for attorney assistance.
Time is another cost. Aside from time spent in the courtroom during the proceedings, any successful petitioner for bankruptcy will be required to take various money and credit management classes, at your own expense. These vary from case to case.
Additionally, your credit rating will reflect your bankruptcy for 10 years. While this technically costs you nothing and does not bar you from receiving loans or credit cards, it is pretty much guaranteed that you will pay considerably higher interest rates, a different financial cost, for years to come. This factor, though, should be weighed against the damage you are likely doing to your credit already if you have acquired more debt than you are capable of handling.
On a smaller scale, there is the social stigma that accompanies bankruptcy. All bankruptcy filings, unless specifically sealed by a judge, are a matter of public record. While this may not be an issue for many, the stress and embarrassment associated with bankruptcy filings might be a deterrent for some.
So while the steps that could lead one to consider personal bankruptcy are usually significant enough that any costs are worth the relief one might feel in their life, it is always important to consider the various costs and how non-financial factors might weigh in your decision.