Cost Of Bankruptcy
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Chapter 7 bankruptcy, also known as liquidation bankruptcy, is the most common type filed by consumers in the United States. Under Chapter 7 Bankruptcy laws, the trustee assigned to the case can repay debtors by selling property and other items that qualify. Therefore, Chapter 7 Bankruptcy can cost an individual his or her home, automobile, and other substantial items. There are nine specific ways for bankruptcy to cost you money; the cost of credit counseling, an attorney, the amendment fees, the petition fees, the reopening fees, the splitting fees, the conversion from a Chapter 13 to a Chapter 7, and the abandonment of property and the withdrawing the reference fees.
The Bankruptcy Reform Act actually increased the cost for people who were trying to file their cases in court. The complexity and growing number of paperwork increased, so filing fees have increased twice since 2005. Attorney fees are also on the rise because of the new complex rules associated with bankruptcy due to the reform rules, making it so they have to spend more time than they used to on different cases. The Bankruptcy Reform Act was meant to slow down the amount of people filing for bankruptcy, and it succeeded for a short period of time. In 2004, 1.6 million people filed for bankruptcy and in 2005, people rushed to file before the reforms went into effect, resulting in 2 million filings.
In the year after the reforms were put into place, only 0.6 million people filed for bankruptcy, while that number grew in 2007 and 2008 to 0.8 million and 1.1 million, respectively.
Chapter 13 Bankruptcy, also known as Individual Debt Adjustment, incurs cost as well. Under Chapter 13 of the Bankruptcy Code, the debtor creates a repayment plan and presents it to the court for approval. Upon approval most of, if not all of, the individual's debt must be repaid within five years.
There are other fees associated with filing Bankruptcy. According to the Administrative Offices of the U.S. Courts, as of April 9, 2006, Chapter 7 Bankruptcy's fees total $299. This includes a $15 trustee surcharge, a $39 administrative fee, and a $245 filing fee.
Chapter 13 Bankruptcy fees total $274. This includes a $39 administrative fee along with a filing fee of $235. Chapter 11 Bankruptcy, which is known as Reorganization under the Bankruptcy Code, incurs fees totaling $1,039. Chapter 12 Bankruptcy, Family Farmer Bankruptcy, incurs fess totaling $239. Typically, the debtor is required to pay the necessary fees upon filing for bankruptcy. In some certain circumstances, the court will allow the debtor to pay the fees in installments. Another fee is that if you are trying to file for bankruptcy, by law you have to attend credit counseling in order to do so. You are obligated to pay for this yourself, and it averages about $50 per session. The fees are the same when filing a joint petition with a spouse.
It is not required, however it is highly recommended, that a person filing for bankruptcy hire an attorney. Bankruptcy laws are extremely complex, therefore a bankruptcy attorney can be a valuable asset in the processes. Attorney fees vary and can cost the debtor a percentage of the debt elimination percentage, ranging from hundreds to thousands of dollars. A person can sometimes be eligible for pro-bono, or free legal services. In order to find out if you are eligible for pro-bono representation, you must contact your state or local bar.
The long-term affects, not the immediate charges, of bankruptcy can be the most devastating aspect of the entire process. Filing for bankruptcy can discharge many debts in certain situations, however, it can remain on the debtor's credit history for up to 10 years. A person that has filed bankruptcy will find it harder to qualify for loans.
Interest rates on loans such as personal loans, mortgages, and auto loans can be very high for a person who has recently filed bankruptcy. Most of the time, an individual that is buying a new home, who has recently filed bankruptcy, will automatically be placed in the subprime category. Home purchases are more expensive when an individual must borrow from a subprime lender. Insurance premiums will also be higher as the companies view your credit history for you potential to make claims. The higher likelihood of you making a claim, the higher the premium. Certain valuable items may be taken from you, such as a home, a car, and household items in exchange for settling a portion of your debts.
Other costs that may not be considered directly related to bankruptcy are the health costs that go a long with it. Many people may fall into depression, develop anxiety problems, or have medical related issues (such as ulcers or hernias) due to the stress of financial problems. Sometimes earlier medical problems are the reason for bankruptcy, because of the high cost of health care in some instances. These can turn into life long problems and end up costing a large chunk of change.
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