The True Cost of Bankruptcy: Is a Lawyer Worth the Investment?

You will have to pay attorneys’ fees if you decide to have a lawyer represent you and file a bankruptcy petition. For a straight bankruptcy, most bankruptcy attorneys offer a fixed fee; others bill by the hour. Whether you file for Chapter 7 or Chapter 13 bankruptcy, it will determine when and what amount you must pay toward attorneys’ fees.

Before determining the cost of a bankruptcy lawyer, you must have an idea about the job responsibilities of a bankruptcy lawyer.

Definition and Role of a Bankruptcy Lawyer

A bankruptcy lawyer is a legal professional specializing in bankruptcy law. Bankruptcy law is a specific area of law that deals with restructuring or eliminating debts that individuals or businesses may owe to their creditors. The role of a bankruptcy lawyer is to assist clients who are facing overwhelming debt and help them navigate the complex legal process of filing for bankruptcy.

Different Types of Bankruptcy Lawyers

There are several types of bankruptcy lawyers, each with specific expertise. The most common types of bankruptcy lawyers include

  1. Consumer Bankruptcy Lawyers – These lawyers specialize in helping individuals struggling with debt, including credit card debt, medical bills, and other personal debts.
  2. Business Bankruptcy Lawyers – These lawyers specialize in helping businesses struggling with debt, including filing for Chapter 11 bankruptcy, which allows a company to restructure its debt and continue operations.
  3. Creditor Bankruptcy Lawyers – These lawyers specialize in representing creditors. In bankruptcy cases, most of them represent big financial institutions such as banks, personal lenders, credit card companies, legal payday loan companies, etc.
  4. Debt Relief Agency Lawyers – These lawyers specialize in providing debt relief services, including debt consolidation, debt settlement, and debt management plans.

What factors may affect the cost of hiring a bankruptcy lawyer?

The cost of hiring a bankruptcy lawyer can vary based on several factors, including the complexity of the case, the experience and reputation of the lawyer, the location of the lawyer, and the type of bankruptcy being filed.

Type of Bankruptcy

The type of bankruptcy filed can also impact the cost of hiring a bankruptcy lawyer. For example, Chapter 7 bankruptcy, which involves liquidating assets to pay off debts, may be less expensive than Chapter 13 bankruptcy, which involves a court-approved repayment plan.

The complexity of the Case

The more complex the case, the more time and resources a bankruptcy lawyer may need to invest, and therefore the higher the cost. For example, cases involving multiple creditors, high levels of debt, or disputes over assets or property may require more time and expertise and thus may result in higher legal fees.

Experience and Reputation of the Lawyer

The final cost will depend on a lawyer’s qualifications, reputation, and experience. A bankruptcy attorney who has just been admitted to practice and does not yet have a well-established reputation will typically charge significantly less. A lawyer who has been in the business for many years has high expertise and a proven track record of success in bankruptcy cases may be in higher demand and can command higher fees. The fantastic reputation or high success rate might be the major factor for high fees. 

Law firm size and type

The size of the law practice may influence the final bill amount. The usual rule of thumb is that costs increase with the size of the law practice. However, this isn’t necessarily true if a tiny firm only handles bankruptcy matters. The cost of a bankruptcy lawyer or firm will also depend on the sort of law firm. For instance, engaging a private law firm to work on a bankruptcy case is more expensive than doing so through a non-profit or a legal aid group.

Location of the Lawyer

The lawyer’s location can also affect the cost of hiring a bankruptcy lawyer. Lawyers in significant cities or high-cost regions may charge higher fees than lawyers in smaller or lower-cost areas.

Fee structures

Many attorneys will charge a fixed fee when taking on a bankruptcy case. This is especially true in Chapter 7 bankruptcy situations. As a result, a client can estimate the general cost of a bankruptcy lawyer’s services. It also implies that a portion of the flat cost will probably need to be paid in advance by the client.

A bankruptcy attorney may also opt to charge by the hour as an alternative. According to what the phrase suggests, a client will be paid for each hour that a bankruptcy attorney spends working on their case. Generally, a lawyer must bill a “reasonable” fee in bankruptcy situations.

The cost breakdown of hiring a bankruptcy lawyer

Without considering any additional specifics, a bankruptcy lawyer will typically cost between $999 and $1,183 in the United States as of 2021. An hourly rate for a bankruptcy attorney often ranges from $200 to $400. Of course, this is only an estimate and will differ from case to instance. For instance, fees might range from $500 for a simple filing to $2,000 for a complex bankruptcy case.

Bankruptcy lawyer costs:

National average cost$1,000
Average cost range$999-$1,183
Low-end cost$550
High-end cost$2,000
Average cost range (per hour)$200 – $400

Attorneys specializing in bankruptcy law help people and corporations who must file for bankruptcy. Chapter 7 (liquidation), Chapter 13 (repayment), or Chapter 11 filings are all possible (large repayment). Credit card debt, student loan debt, medical bills, auto payments, bank loans, back taxes, and mortgage debt are all examples of debt. Whether or not a customer has filed for bankruptcy, assistance is still accessible.

Average attorney fees for Chapter 7 bankruptcy

Most Chapter 7 bankruptcy lawyers consider their rates on the complexity of your case and what other lawyers in the area would charge for a comparable case. You might pay more than an unemployed person with no assets if you have a lot of debt or assets.

Depending on the intricacy of the case, Chapter 7 bankruptcy attorney fees often range from $1,000 to $3,500. Usually, but not always, larger firms with more overhead and advertising expenses charge more than a single practitioner. Some more established law firms charge lower costs and anticipate handling more cases. Also, you might discover that a solo practitioner charges more yet provides more individualized care.

The office will determine this.

If your case is a straightforward Chapter 7, you might not need an experienced lawyer; you can anticipate that a newer lawyer will charge less than a more seasoned one. Because bankruptcy is a specialist field of law, remember that most lawyers won’t take on a bankruptcy case if they don’t consistently practice bankruptcy.

Call a few lawyers in your neighborhood when looking around for a bankruptcy attorney. Ask about their specialization in bankruptcy and compare their prices. You can also find out how many cases they file each month.

For a good reason, you will pay all of your Chapter 7 attorney fees before the lawyer files the case. Most unsecured debt, including attorney costs, is eliminated in a Chapter 7 case. So, if there were a balance owing when the matter was filed, it would be discharged. Attorneys for Chapter 7 understand this, of course, and demand full payment.

Average attorney fees for Chapter 13 bankruptcy

Most courts have recommended “reasonable” Chapter 13 bankruptcy filing fees. An attorney will not be permitted to charge more than the court’s recommended fee unless special circumstances permit it.

Each judicial district has a different set of chapter 13 guideline fees. Yet, depending on the case’s complexity, they cost between $2,500 and $6,000. For example, if you are a business owner, the case will probably involve more labor and, therefore, a more significant charge.

Thankfully, most lawyers don’t demand you pay the entire Chapter 13 bankruptcy fee upfront. Most of the time, lawyers will want to get paid in part before filing your case, and your Chapter 13 repayment schedule will cover the rest. The amount a bankruptcy attorney will demand before filing can vary depending on the lawyer or firm. Nonetheless, you can anticipate paying roughly half the price upfront before the lawyer files your case.

Hourly versus flat rates

A “flat rate” will often be charged by most lawyers, particularly bankruptcy lawyers, to represent you in a bankruptcy case. You have to pay a fixed rate fee to the attorney to represent you, regardless of how much time they devote to your case.

Even though it’s uncommon in consumer bankruptcy cases, other lawyers charge you hourly. The possibility of the lawyer billing a flat rate for most cases is more plausible. Any additional communication required for services like defending against an objection to discharge will be billed hourly by the attorney. Your agreement should specify what is included in the flat charge to avoid confusion in the future.

Why It Is Important To Hire a Bankruptcy Lawyer

Bankruptcy can be complicated and stressful, and hiring a bankruptcy lawyer can help make the process smoother and less overwhelming. Here are some reasons why hiring a bankruptcy lawyer is essential:

Legal Expertise

Bankruptcy lawyers have specialized knowledge and expertise in bankruptcy law and can help clients navigate the complex legal process of filing for bankruptcy.

Protection of Rights

Bankruptcy lawyers can help protect clients’ legal rights and ensure their best interests are represented throughout the bankruptcy process.

Debt Relief Options

Bankruptcy lawyers can help clients explore debt relief options beyond bankruptcy, such as debt consolidation and settlement.

Reduced Stress

Filing for bankruptcy can hit you emotionally and give you mental stress. Whereas having a bankruptcy lawyer might help alleviate some of that stress by providing guidance and support.

Improved Outcome

Hiring a bankruptcy lawyer can increase the chances of a favorable outcome in a bankruptcy case, such as the discharge of debts or the successful restructuring of a business.

Bottom line

Without the help of a legal expert, it will be a difficult decision to make whether or not to file for bankruptcy. Numerous bankruptcy chapters are available, and a single error could cause a federal bankruptcy court to dismiss your entire case. You are, therefore, highly advised to see a local bankruptcy attorney for additional legal advice on your bankruptcy situation. A knowledgeable bankruptcy attorney can help you balance the advantages and disadvantages of declaring bankruptcy and can guide you in choosing the best bankruptcy chapter for your unique situation. They can also help you create and submit the legal paperwork needed to submit a bankruptcy petition to the court.

In addition, your attorney can represent you at any court appearances related to your bankruptcy case, including the 341 meeting of creditors, if you believe you will need their assistance there. Also, your attorney can handle any problems or disagreements resulting from your bankruptcy petition. Finally, depending on whether the court accepts or rejects your bankruptcy petition, they can guide you to the next necessary step. So, consider the above-given factors to determine the bankruptcy lawyer fees and hire an expert accordingly.

Author Bio: Attorney Loretta Kilday has over 36 years of litigation and transactional experience, specializing in business, collection, and family law. She frequently writes on various financial and legal matters. She is a graduate of DePaul University with a Juris Doctor degree and a spokesperson for Debt Consolidation Care (DebtCC) online debt relief forum. Please connect with her on LinkedIn for further information.