Chapter 13 Bankruptcy: What Will It Cost and Will It Work?

If you're dealing with too many debts, you probably wonder whether filing for Chapter 7 or Chapter 13 bankruptcy might be the solution. Learning how much it will cost is part of determining whether Chapter 13 will be the best option for your financial situation. To help, we compiled real-life answers to these questions from nationwide readers who filed for bankruptcy. Here's what we learned from the Chapter 13 filers.

How Much Do Chapter 13 Attorneys Charge?

Chapter 13 bankruptcy is complex and confusing and mistakes can lead to serious financial problems. So we weren't surprised to learn that almost all of our readers (97%) hired a lawyer to help them through the Chapter 13 process. The cost for their attorneys typically ranged from $2,500 to $5,000. But most readers (63%) paid $3,000 or less.

Still, the $3,000 average cost was twice the average that other readers paid their lawyers to handle Chapter 7 bankruptcy cases. Attorneys charge more for Chapter 13 cases because they take longer and involve more work. However, unlike Chapter 7, you don't need to pay the entire fee upfront.

While most Chapter 13 bankruptcy lawyers charge a flat fee that covers essential services, they'll usually only ask for an initial down payment before filing the Chapter 13 bankruptcy petition. You'll pay the remaining attorney fee balance in your monthly Chapter 13 payment to the trustee.

You'll Pay Higher Fees in 2023 and 2024

We gathered these figures in 2020. As a result of the inflation experienced over the last few years, you can expect to pay more, likely up to 25% if bankruptcy fee increases track other attorney fee hikes.

Because fees vary by area and case complexity, you'll want to contact local bankruptcy lawyers for fee quotes. Many offer the initial consultation free. Also, you'll pay the filing fee of $313 as of November 2023 and a relatively nominal amount for two mandatory financial education courses.

When You Might Pay More for a Chapter 13 Lawyer

The amount bankruptcy lawyers charge depends on several things, including their experience level and where they work. Like other expenses, attorneys' fees are higher in large urban areas on the coasts. You might also pay more if your case will require extra work, such as when:

• you're the sole proprietor of a business
• your house is worth less than what you owe, and you want to wipe out (or "discharge") mortgage debt
• you want to discharge student loans, or
• you're involved in a lawsuit when you file for bankruptcy.

Are a Chapter 13 Lawyer's Fees Reasonable?

In most cases, you won't need to worry that you'll be overcharged for your bankruptcy matter. Why? Because your lawyer knows the court must approve the amount you pay your attorney. Plus, many filers can determine whether a fee is reasonable before hiring a bankruptcy lawyer. Here's why (and how).

To simplify the approval process, many courts have guidelines for fees that they'll automatically consider reasonable, known as "presumptive" or "no look" fees. The guidelines also list the basic services that should be covered, as well as add-on amounts for business cases and further services that might be needed, such as filing plan modifications or motions.

These presumptive fees vary depending on the jurisdiction in which you file your case. Check your court's website for the presumptive fee amounts in your jurisdiction. If you're unsure which court you'll file in or how to find the court's website, the Federal Court Finder can help.

How Many Readers Completed Their Chapter 13 Plans?

Our survey showed that readers had slightly more than a 50-50 chance of success with Chapter 13 bankruptcy: Only 52% of readers successfully completed their Chapter 13 plan, while 48% had their cases dismissed. To understand these results, reviewing how Chapter 13 bankruptcy works is helpful.

Debtors draft a plan to repay many of their debts over several years. For example, if you want to keep your home but are behind on your payments, the plan can give you time to catch up on the past-due amounts while you continue with the current mortgage payments. But when a debtor can't keep up with the payments, you would then face foreclosure unless you could get a modification of your Chapter 13 plan.

How Long Does Chapter 13 Bankruptcy Take?

Chapter 13 plans extend over three to five years. The length of your plan will depend on your income and how much time you need to make the payments. (For more details, see our article on how long Chapter 13 plans last.) However, before making payments, the court must approve or "confirm" your plan. For half of our readers, this process took three months or less. It took more than six months for only one in ten readers.

Even though it takes years to finish paying off a Chapter 13 plan, nearly nine in ten readers (88%) told us that as soon as they started the process, they got immediate relief from one troublesome feature of financial troubles: phone calls from debt collectors. That's because once you file the petition, the court will issue what's known as an "automatic stay," which orders creditors to stop trying to collect their money.

Were Readers Satisfied With Their Chapter 13 Experience?

Readers who filed for Chapter 13 bankruptcy were about equally split between those who were satisfied with the outcome (40%) and those who were dissatisfied (44%). Given the number of people who couldn't complete their repayment plans successfully, it's understandable that many would find the process frustrating. Overall, the survey results demonstrate the importance of getting good advice from an experienced bankruptcy attorney and developing a realistic Chapter 13 plan.