Court costs to file a Chapter 7 or 13 are typically around $300. Lawyer’s fees will vary depending on the complexity of the bankruptcy. Lawyers generally will charge between $1000 and $2000 for a routine bankruptcy filing. Most lawyers provide a free initial consultation and will give you an estimate of their fees in your specific case.
There are two types of creditors. A secured creditor has collateral securing the loan or debt. A car loan or mortgage is usually a secured loan. An unsecured creditor does not have collateral. A credit card is usually an unsecured debt. These creditors are treated differently in a bankruptcy proceeding.
A bankruptcy does not affect a secured creditor’s right to the proceeds from the sale of the collateral pledged to secure the debt. If the proceeds from the sale of the collateral are not sufficient to pay off the loan the remaining debt will be treated as any other unsecured debt and share in the trustee’s distribution of proceeds from the sale of the debtor’s non-exempt assets. If the proceeds from the sale of the collateral exceeds the amount owed the remaining proceeds will be distributed by the trustee to the other creditors.
Unsecured debt is discharged in a bankruptcy. The unsecured creditors will share in the proceeds from the trustee’s sale of non-exempt assets.
If you are buying your home and file bankruptcy you may be able to keep your home if you are able to continue making the mortgage payments. In a Chapter 13 you can keep as much equity in your home as the court approves in your debt reorganization plan. In a Chapter 7 the amount of equity in your home exempt from a bankruptcy sale of assets depends on the homestead exemption laws in your state. If you have less equity in your home than the homestead exemption limit in your state and are able to continue making the mortgage payments you will be able to keep your home.
If you are purchasing a car, have a secured loan and the car is not worth more the combination of your personal exemptions and what you owe you may be able to reaffirm the loan with your creditor and continue to make the car payments and keep the car.
If you fall behind in your payments on secured or unsecured debts you should attempt to work out a voluntary repayment plan with the creditors. Bankruptcy should only be viewed as a last alternative since it will affect your credit for up to ten years.
Filing a bankruptcy is a complicated decision. Each case is different depending on your unique situation. You should seek professional advice before filing.