What does it cost to file Chapter 11 bankruptcy? One common question attorneys receive when a client is considering bankruptcy is how much it will cost. After all, you are overburdened with endless debts and barely scraping by financially. While bankruptcy provides relief from creditors and liabilities, you still must pay for that relief.
So, how much would it cost to file Chapter 11 bankruptcy? There is no one-size-fits-all answer. Instead, it is best that you speak with a bankruptcy attorney in your area to see what their fee is and estimated total costs.
One word of caution: do not be turned away by sticker shock. While your bankruptcy case does seem to have a high upfront cost, your bankruptcy attorney will be able to stop collections, keep creditors from harassing you, and help you get back onto your feet financially. Bankruptcy may also possibly save your business if you are filing for business reasons. Consider the cost of bankruptcy more of an investment into financial freedom.
Understanding the Fees for Chapter 11 Bankruptcy
Chapter 11 bankruptcy might be more expensive than Chapter 7. That is because you are working to restructure your debts instead of erasing them entirely. Under a Chapter 11 bankruptcy plan, your attorney helps create a repayment schedule. And if the court approves it, you can make one payment per month and eventually pay down your debts.
The cost of Chapter 11 depends on the fee arrangement with your attorney, creditor disputes, and the filing fees.
Understand that the fee charged by an attorney is in addition to filing costs and other court fees. Therefore, the more prepared you are for all costs, the better it might be.
Only use the fees I outline below as a potential guideline. If you want an exact quote on your Chapter 11 bankruptcy, you need to speak with an attorney. Each attorney is unique with how they charge their clients. Some will include filing fees into their estimated lump sum payment, while other attorneys charge hourly and have clients incur the costs.
The first fee you encounter is your attorney’s fee. Some attorneys for Chapter 11 bankruptcy will require a retainer up front. The retainer is the lump sum you pay to secure your attorney’s services. Then, as they bill hours, they deduct from your retainer. Attorney retainers can range from $500 to over $5,000 – depending on the case and the attorney’s fee schedule.
While a Chapter 7 attorney might allow a lump sum payment for the entire process, most Chapter 11 attorneys will have a retainer and hourly billing rate. This is because the process of filing for Chapter 11 and completing the bankruptcy is complex and unpredictable.
You can ask your attorney upfront about their retainer cost, how the retainer works, and if you will receive the remaining balance of the retainer after your Chapter 11 case is completed. Also, ask about their hourly billing rate and how they deduct that hourly billing from your retainer. Once the retainer is gone, most attorneys will bill monthly for their services and you must pay them for the hours billed.
In addition to your attorney’s fee, you will incur filing fees. Filing fees are typically much higher for Chapter 11 than for Chapter 7 or Chapter 13. Chapter 11 is known as a reorganization bankruptcy. Currently, the state of Washington has set their new case filing fee at $1,717 for Chapter 11 as of March 2018. This fee is due in addition to your attorney’s fee.
Other Court Fees
Other miscellaneous fees might apply to your bankruptcy case. The fees include, but aren’t limited to, amendments, appeals, judgments, garnishments, payments returned for insufficient funds, photocopies, printing, transferring claims, searching records, or splitting a case. Fees for this range from less than $100 to over $1,000 – depending on what your attorney needs to file.
The Cost of Battling Disputes
In Chapter 7, you might have creditors show up to the meeting of the creditors and dispute. However, this is only at a single hearing. During Chapter 11, you are restructuring and renegotiating debts, which means your attorney is continually working with the court trustee and negotiating with creditors to restructure and organize everything properly into a new payment plan.
Once the reorganization steps are complete, you will then have to go through a debt repayment plan. Creditors must approve, or the court must agree to, the repayment plan. If you have no disputes, you might walk away paying fewer than $15,000. However, if your case is extremely complicated or you have multiple disputes that require hearings, you could spend much more in attorney’s fees alone.
Are There Ways to Reduce the Cost?
You need your Chapter 11 to succeed in order to save yourself financially. However, there are ways you can reduce the financial burden in the process. You can work with your attorney to structure fees in a way that you can afford to pay them. There may also be tasks you can do for your attorney that reduce the costs for your attorney’s office.
Do Not Let Fees Turn You Away
You will lose more money if you continue to struggle to pay back your business debts. While you are spending a significant amount of money for the freedom provided by bankruptcy, it eventually repays you in the end. More importantly, you might be able to keep a business open, which means generating profits again and no longer living in the red.
Speak with a Bankruptcy Attorney Today
Contact us to discuss your options for turning around your finances.