When a business owner considers bankruptcy, the first question is often, “How much will it cost?” The answer is the attorney’s fees plus what you pay to the court. There is also the cost of credit counseling. Filing costs and counseling fees have risen, and the rise is in line with inflation. But the biggest costs are yet to come.
When there’s no other option, and bankruptcy is what’s left, the first steps are to obtain credit counseling and hire a bankruptcy attorney, and to plan the case so the losses are minimized. Getting out from under crushing debts and pesky bill collectors is tempting, but you have to take the time to plan things right.
Bankruptcy Attorney Fees Vary Widely
So why call any of this hidden? Usually business owners are comparing just two items: the attorney’s quote and the court filing fee. They know they have to pay the attorney for doing the work. The problem is, bankruptcy attorney fees vary widely, and every business owner’s situation is different. Where in the country you file can make a difference in how high the bill goes. The complexity of the case is another factor. And, of course, your credit history plays a big role, too.
If you’re a business owner and your debts are business debts, it’s possible you have a choice of filing either Chapter 7 or Chapter 11 bankruptcy, depending on the circumstances of your business. The cost of the bankruptcy will vary depending on the type, the size and the complexity of the case. But choosing the wrong type of bankruptcy can really set you back.
Location matters. Bankruptcy fees differ from state to state and, believe it or not, from city to city. Filing in Los Angeles does not cost the same as filing in San Diego. Availability of bankruptcy attorneys also affects pricing.
Your bankruptcy attorney’s fees are closely tied to how complex your financial life is: how much money you owe your creditors, what assets you own, what sources of income you have and how much income you receive. In other words, the more your personal financial situation has going on, the more time it will take your lawyer to figure things out, and the more expensive the services will be.
Having been in bankruptcy before can turn a simple filing into a costly headache, since the process can be different the second time around. You’ll also have to disclose your real financial situation fully, which can complicate things further.
Don’t just call any old lawyer when you’re dealing with bankruptcy. An experienced bankruptcy attorney can help you keep costs under control. Paying your attorney a flat fee is usually less expensive than paying per hour. Even the best New York lawyer isn’t going to give you the best advice if your case is in Los Angeles; you need a lawyer who knows the laws of your state. And try to find a quality lawyer at a fair price. Make sure the law firm has an easy payment option and a strategy to discharge the most debt at the lowest cost.
Poor Credit After a Bankruptcy
Here’s a fact that tends to surprise owners: A Chapter 7 bankruptcy can remain on your personal credit report for a full ten years. Poor credit after a bankruptcy can be an expensive liability for years. If the owner needs to borrow in order to re-establish the company, they may find lenders unwilling to help. A lender that does make a loan will be charging a higher interest rate, so all future borrowing will cost more. That’s a cost that isn’t in any lawyer’s quote.
Although filing for bankruptcy might let you escape financial losses, it may put your business in jeopardy. You need a clear strategy and the correct type of bankruptcy before you dive in. You have to consider all options before filing for bankruptcy - and to do that, you must remain as open-minded as possible.
Explore All Your Options
There are ways to make the cost manageable. If your income is very low, the court can waive the filing fee. Some lawyers will let you pay their fee in installments.
Before you consider filing for bankruptcy, look at your options for working out your business debts. For example, you might reach a deal with your creditors to settle for less than you owe, or simply to pay them off in installments. You might decide to get out of business debts on your own terms, to avoid some of the long-term damage a bankruptcy filing can cause. Every case is different, and you should explore all your options.
Keep in mind that failing at your business does not mean you’re a failure as a person. You might think that bankruptcy is the worst possible thing in the world, but if planned right it can be an opportunity to be freed of crushing debt and collections calls. However, the true cost of bankruptcy is far greater than the law firm’s quoted fee; you’ve got to add in all the years of bad credit and make a thoughtful decision.
