Bankruptcy law is incredibly complex and powerful
It’s also not cheap to file. And there is a reason for that. But still there are ads promoting $499 and $795 Chapter 7 bankruptcy. People should beware of low advertised fees because they are disingenuous, never meant to be honored, and signal to non-lawyers that bankruptcy practitioners do not deserve to get paid for providing financial debt relief.
Only about 1% of the population files for bankruptcy. As a result, the pool of clients is relatively small, and business is cutthroat. Bankruptcy attorneys routinely have some of the most sophisticated website designs and pay a lot for advertising.
Bankruptcy law is very complex and the barriers to entry are high. The overhead is enormous, the bankruptcy and client management software are walled gardens with annually increasing prices. The phone systems can cost several hundred dollars – if not more – per month.
It takes great skill to properly prosecute a Chapter 7 or Chapter 13 bankruptcy and achieve a result that is predictable. You cannot cut corners and expect a good result. A good result is when a debtor receives their discharge, and their expectations were managed for all possible outcomes. To get a good result an attorney must spend time with the client and review their paperwork.
If you see advertisements that promise low bankruptcy preparation fees for your area, be aware
The $499 bankruptcy does not exist. The $795 bankruptcy does not exist. It is impossible to spend only 2-3 hours on a Chapter 7 bankruptcy and do a good job. There is no way an attorney can ethically represent a debtor in bankruptcy and spend only two hours.
Chapter 7 fees generally run between $1,600 – $2,500. For a breakdown on my fees – including where to find legitimate low fee representation, click here. Most attorneys charge between $250 to $300 per hour. To run a below median Chapter 7 from start to finish takes about 6-8 hours depending on the complexity of the case.
Lets do the numbers
When a prospective client calls me, we generally speak on the phone for about 30 minutes. Sometimes more, sometimes less. I can usually get an idea where this person is financially and whether they even need to file bankruptcy. If the prospective client decides to move forward, we will often meet in person to go over the process of filing bankruptcy. We’ll talk in more detail and discuss pre-filing strategy, asset protection, loss mitigation and go over all the possible scenarios that can occur. Managing expectations is key. At this point, due diligence and best practices will easily put a good attorney in at about 2 hours.
Documents and Drafting
Documents necessary to draft a bankruptcy include tax returns, pay stubs, bank statements, vehicle titles/registration, divorce decrees and property settlement agreements, retirement account statements, collection letters, bills and credit reports.
Pre-drafting a case involves data entry as well as looking beyond the documents to understand the story behind them. The attorney will need to run the means test to officially determine whether above or below median. It is also important to review bank statements for anything out of the ordinary. You don’t want a Chapter 7 Trustee to find something you missed. The time it takes to pre-draft a bankruptcy petition and related schedules varies from case to case. A good average is about 1 hour.
An attorney may have several questions after reviewing documents and pre-drafting a case. The drafting appointment involves a one-on-one meeting with the attorney and debtor. The attorney must review in detail the Schedules and Statement of Financial Affairs to explore any possible transfers or conveyances that may affect insiders. I average about 3 hours for a drafting appointment assuming no surprises.
Filing the Case & Post Filing
It takes about 5 minutes to actually file a case using bankruptcy software. Preparing the case for filing is extremely important. You must redact all but the last four digits of social security and bank account numbers. Double check you properly exempted an asset. Make sure YTD numbers on pay stubs match SOFA.
The 341 Hearing / Meeting of Creditors is held between 20-40 days after the filing of a bankruptcy, and you can expect to spend about 1 hour for travel and waiting for your meeting to be held. I charge an extra hour if a debtor has secured debts that require a reaffirmation.
Without a reaffirmation total time is an average of about 7 hours – with a reaffirmation 8 hours. At the lowest $250 per hour the attorney has billed between $1,750 – $2,000. If the case ends up being an asset case due to liquidation of tax refunds or other non-exempt assets, the attorney will likely spend more time on communication and tracking.
What exactly is a base rate bankruptcy?
So, what exactly is a base rate bankruptcy? A typical Chapter 7 attorney client representation agreement includes the drafting and filing the case, exemption / asset preservation planning, appearance at the 341 hearing, negotiations with creditors on redemptions and necessary reaffirmations. It generally does not include representation of the debtors in any dischargeability actions, judicial lien avoidances, relief from stay actions or any other adversary proceeding.
A base rate bankruptcy is likely a rate that applies to 1% of the population. The type of case where the debtor has no job or on a fixed income, no assets, only a handful of creditors, is not required to file taxes, has no bank account. In that scenario, okay, maybe $795 is about fair.
99% of Cases are Not Base Rate
The reason people should beware of low advertised fees is because they are disingenuous, are never meant to be honored, and signal to non-lawyers that we do not deserve to get paid for providing financial debt relief. As I laid out above, it is nearly impossible to properly draft and file a Chapter 7 in under 6 – 7 hours.
The attorney may charge extra if you have more than a set amount of creditors, or if you are filing jointly with your spouse, or if you have a certain amount of debt. These factors rarely make a Chapter 7 more complicated so do not usually justify a higher fee.
Number of creditors or size of debt does not affect complexity
While the fee charged often depends on the complexity of the case or experience level of the attorney, factors such as the number of creditors and the amount of debt should not, by themselves, change the fee you are charged. There may be exceptions for cases with very high numbers of creditors because of the time it takes to prepare the bankruptcy papers, but this is rare. It is not unusual for an average consumer bankruptcy to have thirty to forty creditors listed. An average small business bankruptcy could easily have double or triple that amount.
Individual vs. joint filing
The fact that you are filing jointly with your spouse, rather than individually, should not increase the fee. In fact, a case where a married person is filing individually and their spouse is not filing usually involves more legal analysis and is more complex than when both spouses are filing together.
You pay for what you get
Beware of low advertised fees. Somewhere a corner is getting cut and important details are overlooked. As a result, the debtor ultimately pays a higher price. It takes time to produce a quality product. Lawyers charge for their time.
How Much Is A Chapter 7 Bankruptcy? If you have questions about what a Chapter 7 Bankruptcy will cost you, please give us a call at 785-727-7700 for a FREE Consultation over the phone or in person or you can email us now.