If you’re struggling with debt, you probably don’t have a lot of extra cash lying around. Can you afford to file a bankruptcy case? Let’s take a look at the costs associated with filing for bankruptcy in New Jersey.
Before you file for bankruptcy, you’ll have to go through a credit counseling class. § 109(h)(1). Expect to pay about $50 for credit counseling. Credit counseling agencies are legally prohibited from turning you away if you can’t afford the fee, but you’ll have to show them evidence that you can’t pay.
Bankruptcy Filing Fees
The fees mentioned in this section are independent of lawyer fees which can vary considerably based on the complexity of the case. Most consumers file under either Chapter 7 or Chapter 13. Under Chapter 7, you’ll surrender your non-exempt assets to the bankruptcy trustee; the trustee will sell them and use the proceeds to pay your debts. Under Chapter 13, you’ll create a five-year payment plan and make scheduled payments each month. At the end of either process, your remaining unsecured debt is discharged. To file under Chapter 7, you’ll have to pay a filing fee of $306. § 1930(9), (a)(1). For Chapter 13, it’s $281.
If you can’t pay all at once, the court may allow you to pay in installments. If you make less than 150% of the poverty line, the court may waive your fees altogether when you file under Chapter 7. In 2013 the federal poverty line was about $23,000 for a household of four, meaning that a family that earned less than $35,000 could request a fee waiver.
If your case is dismissed (which could happen either because you filed in bad faith or because you missed plan payments under Chapter 13), you’ll have to pay the filing fee again to reopen the case. § 1930(11).
Bankruptcy Attorney Fees
Filing pro se, or without the help of an attorney, is usually bad news for your bankruptcy case. Filing for bankruptcy requires a lot of technical knowledge even if everything goes perfectly smoothly – and it almost never will. You’ll have to file all the documents, correctly filled out and on time, you’ll need to be certain that you’re filing under the right chapter, and you’ll be responsible for preparing official answers to creditors’ complaints. It’s a lot of work and a small mistake can make a big difference in your case. Your case may even be dismissed because of an error.
An experienced bankruptcy attorney has dealt with thousands of cases like yours and knows all the ins and outs of the system. She can make sure you have all your paperwork, she knows how to stand up to creditors and the trustee, and she can make sure you get the most out of your bankruptcy. Of course, an attorney isn’t free. What does it cost to hire a bankruptcy attorney?
The answer depends on the attorney. You’ll have to pay reasonable compensation for the time the attorney spends on your case. If your case is routine, that won’t be as much. Your attorney will consult with you about your needs and options, fill in and file your paperwork, and represent you in front of the bankruptcy court.
If adversary proceedings or a mountain of objections complicate the proceedings, the bill will be higher. Perhaps the trustee objects to your discharge or a creditor believes you have listed the wrong kind of debt or debt in the wrong amount. That sort of fight can take time and a significant amount of legal expertise. You’ll be glad to have a lawyer – you won’t be able to manage a legal battle on your own. On the other hand, that sort of legal work costs more than a simple bankruptcy filing.
When you retain a bankruptcy attorney, you’ll pay just one bill to the attorney. They’ll handle the payment of the individual court fees to make sure payment is timely and in the correct amount.
The Cost of Bankruptcy Itself
The above costs are part of the bankruptcy process. You should also be aware of the cost of bankruptcy itself. If you file under Chapter 7, the trustee will take control of your non-exempt assets and sell them. As a practical matter, most of our clients don’t lose any of their property in chapter 7 because it’s all exempt. The proceeds go to your creditors. New Jersey offers no exemption for a homestead and only $2,000 total of other exemptions. N.J.S.A. 2A:26-4. That means the trustee can go after property you own that has substantial equity. That seems overwhelming, but you’ll still come out debt-free on the other side. You may also opt for the federal exemption scheme, which protects up to $22,000 of equity in your home and varying amounts for other assets. 11 U.S.C.A. § 522. The federal exemptions will likely protect more of your property than the New Jersey exemptions, but you should discuss your options with your bankruptcy attorney to make sure you protect what’s most important to you. When the trustee has disposed of your non-exempt assets, your remaining debt will be forgiven.
If you file for Chapter 13, you probably won’t have to give up any of your assets. You’ll calculate your income and your living expenses and you’ll pay the remainder to your unsecured creditors. At the end of the bankruptcy process, your remaining unsecured loans will be discharged. Remember that certain debts, such as student loans, can’t be discharged through bankruptcy.
The Bottom Line
Filing for bankruptcy isn’t free, but it’s better than having creditors breathing down your neck. Without the protection of bankruptcy, creditors can get judgments against you and levy your bank accounts, seize your property, place liens on your home, and garnish your wages. If you’re a low-income debtor, you may qualify for free legal help from the state of New Jersey. For more information and to see if you qualify, check out Legal Services of New Jersey. If you’re interesting in learning more about bankruptcy or if you’ve decided to file, check out our other bankruptcy-related content and reach out to one of our experienced bankruptcy attorneys.