Can I File Bankruptcy for Free? 10 Ways to Cut Costs

If you have more debt than you can pay, bankruptcy is a way to get a fresh start. If you’re considering bankruptcy you’re probably under serious financial stress, and the costs of a bankruptcy proceeding can be daunting. You may be wondering if it’s possible to file for bankruptcy for free.

You may not be able to make bankruptcy 100% free, but the cost doesn’t have to be overwhelming. Let’s look at some ways to reduce the cost of a bankruptcy filing.

Filing for Bankruptcy Will Have a Few Costs

It is almost impossible to file for bankruptcy for free. Some of the costs, like filing fees, fees for mandatory financial counseling courses, and the cost of printing forms, are built into the system and are difficult to avoid.

The fixed costs of a bankruptcy filing will be at least $400 and often more. Some costs may be waived for low-income filers and those who are in deep financial distress. If you can get the filing and counseling fees waived it may be possible to file bankruptcy for free, or close to it.

Most bankruptcies require some legal assistance, and if your bankruptcy case is complex a lawyer will be essential. Attorney’s fees can add significantly to the cost of bankruptcy, but schedule a free consultation to get a little bit of legal help to navigate the bankruptcy basics.

What is the Difference Between Chapter 7 and Chapter 13 Bankruptcy?

Almost all personal bankruptcies fall into two categories: Chapter 7 and Chapter 13.

Chapter 7 Bankruptcy

If your income over the last six months has been below the median income for your household size in your state, you will qualify for Chapter 7 bankruptcy. If your income is above that level you may still qualify if a means test proves that your income is not sufficient to pay your debts.

In a Chapter 7 bankruptcy — also called a liquidation bankruptcy — the court will supervise a sale of your assets and use the proceeds to pay your creditors. Some essential assets are exempt from sale, and 96% of Chapter 7 bankruptcies do not involve any asset sales. If your bankruptcy is approved your unsecured debts — including credit card debt and medical bills — will be discharged, meaning you don’t have to pay them.

Chapter 13 Bankruptcy

If your income is above the median for your household in your state and the court determines that you have the ability to pay some debts, you will have to file for Chapter 13 bankruptcy. A court-appointed trustee will develop a payment plan, and you will have to use your disposable income to pay your creditors under the trustee’s supervision. This is often called a “wage earner’s plan” because it helps people with a regular income to consolidate their debts.

Any debts left unpaid when the payment plan is completed may be discharged.

Some debts cannot be discharged in any type of bankruptcy.

  • Mortgages, car loans, and other secured debts.
  • Tax debts of government fees.
  • Child support or alimony.
  • Court-ordered payments.
  • Most student loans.

If you are carrying these types of debt bankruptcy may not be your best solution.

Chapter 13 bankruptcies are typically complex, and you will need a lawyer, which drives their cost up. You may be able to file a simple Chapter 7 with low (or even no) legal costs, and if you qualify, Chapter 7 is the best way to file bankruptcy for free or at a low cost.

How to File for Bankruptcy in 10 (Cheap) Steps

If you want to file for low-cost bankruptcy, you’ll follow these steps. By using a methodical approach you’ll make sure you have everything on order before moving on to the next step. This will ensure that you don’t make a misstep that will increase your costs if you have to re-do paperwork or make an extra trip to the courthouse.

1. Talk to a Bankruptcy Attorney

Most bankruptcy lawyers offer a free initial consultation. This can be a great opportunity to explore whether bankruptcy is the right move for you, what kind of bankruptcy you’d file, and what will be required.

Even if you know you can’t afford a lawyer, take advantage of that free consultation to get some legal advice. It is not advised to try to file bankruptcy without at least talking to an attorney. Bankruptcy law can be complicated and it varies from state to state. One mistake on your part can result in your case being dismissed, and you’ll lose your filing fee and the other money you’ve already shelled out.

If you choose to hire a lawyer, legal fees should average around $1,500 for a Chapter 7 filing and from $3,000 to $3,500 for a Chapter 13 filing. Your costs may be substantially higher or lower depending on your location and the complexity of the case.

Before you decide to save money and skip the bankruptcy lawyer, check with local legal aid societies or legal clinics for free legal assistance. Ask your state’s bar association about pro bono lawyers. The U.S. Government’s legal aid website is a good starting point.

2. Gather Your Paperwork

Either form of bankruptcy will require documentation of your financial situation, including your income, assets, and debts.

Many banks charge a fee to send paper statements, so there probably will be some costs involved in gathering this paperwork if you don’t have the information you need stored electronically. And even if you do have the electronic statements, you’ll need to print them, which can cost anywhere from 15 to 50 cents per page.

You’ll need to prepare at least the following.

  • Tax returns
  • Proof of income
  • Mortgage statements or rent receipts
  • Documentation of other debts
  • Vehicle registration, proof of value, and insurance
  • Statements from your bank, retirement, and other financial accounts
  • Identification
  • Documentation of other recurring costs, like alimony or child support

Some bankruptcy courts may require additional documents.

Honesty is important. Do not try to conceal income or transfer assets to other people. Your bankruptcy will be dismissed, fees will not be refunded, and your debts will not be discharged.

3. Complete Your Initial Credit Counseling Requirement

Credit counseling is a mandatory requirement for both Chapter 7 and Chapter 13 bankruptcy. You must complete a course within 180 days of your bankruptcy filing. Your counseling provider must be approved by the Department of Justice.

Your counseling session will review your financial situation, explore alternatives to bankruptcy, and help you decide whether bankruptcy is the right option for you. Though many credit counseling agencies are nonprofit, the course will cost between $10 and $50. If your income is less than 150% of the federal poverty line you may be able to get the fee waived.

4. Complete the Bankruptcy Forms

The bankruptcy process involves a lot of forms. The U.S. Courts bankruptcy forms page lists well over 100 of them. You won’t be required to complete all of them, but you will have to fill out at least 20. The bankruptcy court that serves your area can tell you which forms you’ll need.

Again, the cost here will be printing. While the easiest way to do this is through the FedEx Store — you submit them and FedEx emails you a code that you enter at the machine in the store — that will cost you 65 cents per page. The cheapest way to do it will be through the library. Some will let you print a certain number of pages per week for free, while others charge as little as 15 cents per page.

The forms must be completed accurately and correctly. If you’ve retained a lawyer, the lawyer will help you with both the printing and completion of forms. If you are not using a lawyer, you will have to fill the forms out carefully and be sure you understand what’s required. If you make a single mistake, you may have to start over from scratch with a second round of printing costs, or — in a worst case situation — your entire bankruptcy case could be dismissed.

If you are filing a simple Chapter 7 bankruptcy and you can’t afford a lawyer, consider using Upsolve, a free app that has been called “TurboTax for bankruptcy”. The app will ask you for the required information and generate completed forms for you to file. Upsolve is completely free and has earned praise from bankruptcy experts for making bankruptcy more affordable and accessible.

Using Upsolve can help you file bankruptcy for free or at low cost.

5. Pay the Filing Fee

Bankruptcy proceedings take place in federal courts, and the filing fees are the same all over the country. The fee is $338 for a Chapter 7 bankruptcy and $313 for a Chapter 13 bankruptcy. If you cannot afford to pay this fee you have two options.

  • Apply to pay the fee in installments. You’ll need to submit Form 103A to apply to pay the Chapter 7 filing fee in installments. You’ll need to propose a schedule with no more than four payments and complete the payments within 120 days of filing.
  • Apply for a fee waiver. If your income is below 150% of the federal poverty line you can apply for an exemption that waives the fee. You’ll need to submit Form 103B. The current federal poverty line for a family of four is $27,750 per year, so if your income is below $41,625 you will qualify. Poverty lines vary with family size and are higher in Alaska and Hawaii; check your poverty line here.

If your application for installment payments is approved, be sure to make the payments on time. Your debts will not be discharged if you fail to pay. If you want to file bankruptcy for free or at the lowest possible cost a fee waiver will help you.

6. Make Copies of Your Bankruptcy Paperwork

At this point you will need make copies of the paperwork you printed out in Step 4. They must be printed on one side only and you will need to sign each copy of each form. Do not duplicate signed forms, they will be rejected if each signature is not original. How many copies you need of each will depend on court requirements.

Once again, if you don’t have a suitable printer at home you may have to pay the cost of copying these documents. Check libraries and office supply stores, which may charge less than printing businesses. Expect to pay at least 15 cents a page.

Your printed documents will include:

  • All required forms for your bankruptcy petition.
  • The completion certificate from your credit counseling course.
  • Your recent pay stubs.
  • Any application for a fee waiver or installment plan

Contact the local bankruptcy court with jurisdiction over your area to confirm what forms are required and how many copies of each form you’ll need to submit.

7. File Your Completed Forms

You will need to file your forms at the courthouse. You’ll have to pay your filing fee at the same time. You should plan to pay with cash or a check, credit card payments are usually restricted. You’ll need to do this in person during business hours, so you could lose wages if you have to miss work. You also will likely have to pay a parking fee.

The Clerk of Courts will provide you with your case number, the name of your bankruptcy trustee, and an appointment for a meeting with your trustee and your creditors. An automatic stay will go into effect, which will halt any debt collection efforts. Wage garnishment, foreclosure, and eviction proceedings will also stop.

8. Mail Your Documents to Your Trustee

The bankruptcy court will appoint a trustee to oversee your case.

You will have to provide copies of your bankruptcy paperwork to your trustee. This will cost you anywhere from $8 to $15 depending on the size, weight and distance. Make sure to pay extra to get a confirmation of receipt.

The role of the bankruptcy trustee varies with the type of bankruptcy you file.

  • A Chapter 7 bankruptcy trustee will review your petition, supervise a meeting with creditors, and supervise the sale of any non-exempt assets and the distribution of the proceeds to creditors.
  • A Chapter 13 bankruptcy trustee will work with you and your creditors to develop a repayment plan, usually over three to four years, and supervise the implementation of the payment plan. You will pay the trustee, who will distribute the proceeds to creditors.

9. Take a Second Bankruptcy Course

Before your bankruptcy case is resolved, you must take a second course from an approved counseling agency. This will be a debtor-education course focused on helping you understand the causes of your bankruptcy and how you can improve your financial management in the future.

The course will cost between $10 and $50. You can apply for a fee waiver if your income is below 150% of the federal poverty line.

10. Attend Your Meeting of Creditors

The creditor’s meeting or “341 meeting” gives creditors a chance to represent their own interests and explain why your debt to them should not be discharged. It usually takes place about a month after you file. The court will set the date, time, and place and notify you. You will have to attend in person. You’ll once again have to pay bus fare or parking expenses, depending on where you live, and could have some lost wages if you have to miss work.

Your trustee will verify your identity and ask some basic questions about your case. You will need to bring the following documents, and it will cost you some money if you don’t already have them.

  • Government-issued ID
  • Your Social Security card
  • Pay stubs from the last 60 days
  • Recent bank statements
  • Any other documents requested by your trustee

While you may have to pay for bank statements, note that you should never have to pay for a replacement Social Security card.

Finally: Wait for Your Notice of Discharge

The notice of discharge is the formal conclusion of a bankruptcy proceeding. The debts that are discharged no longer have to be paid, giving you a fresh start and a chance to rebuild your finances.

If you need to file for bankruptcy and have no money, check out this video for more information on how to file on the cheap.

Bankruptcy Will Have Longer-Term Costs as Well

A Chapter 13 bankruptcy will remain on your credit report for seven years. A Chapter 7 bankruptcy will remain on your credit report for ten years. Either will have a significant impact on your credit score, which will cost you more in the short run because you’ll have to pay higher interest rates. It will also raise the cost of some other purchases, like car insurance because insurance rates are tied to your credit score. There are many advantages to having good credit. But the impact will decline as time passes. Recent records have more impact on your credit score than older records

The damage to your credit will not be permanent — though there are some damages (a charge-off, for example) that could last forever. Your debts will be discharged and you won’t have to pay them, which will give you some financial flexibility and lower your cost to borrow money. It will take time, but with good financial management, you can rebuild your credit and eventually your costs to borrow will decline.

The Bottom Line

Bankruptcy is usually considered a last-ditch way to repair finances, but filing might make more sense for your financial situation than other debt consolidation methods, particularly if you regularly find yourself turning to payday loans to get by. And if you’re struggling just to make it each day, there are a few resources to check out while you get your bankruptcy case in order.

You may not be able to file bankruptcy for free, but the steps above should help you reduce the cost. Just be sure to consult a bankruptcy lawyer to ensure that you meet the qualifications and it’s truly your best option.

FAQs

What Happens to my Car Loan in Bankruptcy?

A car loan is a secured loan: the vehicle is collateral for the loan. Your car loan can be discharged in bankruptcy, but your lender will repossess the vehicle. If you want to keep the car you will have to keep making the payments.

Where can I Find a Bankruptcy Attorney?

If you know anyone who has been through bankruptcy, ask for a referral if they were happy with their lawyer. If you don’t, the National Association of Consumer Bankruptcy Attorneys or your state’s bar association can refer you to bankruptcy attorneys in your area. Most of these lawyers will offer a free initial consultation, and you should talk to several before selecting one.
If you can’t afford a lawyer, you can still use free consultations to assess your situation. Search for free legal clinics or legal aid societies in your area, and check your state bar association for lawyers offering pro bono services. If you are considering Chapter 7 bankruptcy you may be able to use Upsolve instead of hiring a lawyer.

What is Chapter 11 Bankruptcy and How is it Different from Chapter 7 and Chapter 13?

Chapter 11 bankruptcy is typically used by corporations or large businesses. It is sometimes called “reorganization bankruptcy” because it allows a company to stay in business while restructuring its debts. Chapter 11 is the most complicated and expensive form of bankruptcy. Chapter 7 and Chapter 13 bankruptcies are used by individuals; Chapter 11 is used by businesses.

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