What is the Cost of Filing for Bankruptcy for a Business?

 Filing for bankruptcy is a significant step for any business facing overwhelming debt. While bankruptcy can provide much-needed relief by helping a business restructure or discharge its debts, it comes with certain costs. The costs associated with filing for bankruptcy can vary depending on several factors, including the type of bankruptcy being filed, the complexity of the case, and the size of the business. Understanding these costs can help you prepare financially and make an informed decision.

In this article, we will break down the different costs associated with filing for bankruptcy as a business, including court fees, attorney fees, and additional expenses that may arise during the bankruptcy process.

Types of Bankruptcy and Associated Costs

There are different types of bankruptcy a business may file for, each with its own set of costs. The two most common forms of bankruptcy for businesses are Chapter 7 and Chapter 11, although small businesses can also file under Chapter 13 or Chapter 12 in some cases.

1. Chapter 7 Bankruptcy (Liquidation)

Chapter 7 bankruptcy is typically used by businesses that are no longer able to operate and need to liquidate their assets to pay off creditors. Under this type of bankruptcy, the business’s non-exempt assets are sold by a court-appointed trustee to pay back creditors, and the remaining debts are usually discharged.

Costs of Filing Chapter 7 Bankruptcy:

• Filing Fees: The court filing fee for Chapter 7 bankruptcy is approximately $335. This is the base filing fee required to start the bankruptcy process. Additional fees may apply if there are other actions needed during the process, such as motions or hearings.

• Attorney Fees: Attorney fees for Chapter 7 bankruptcy can range between $1,500 and $4,000, depending on the complexity of the case and the attorney’s experience. This includes preparing and filing paperwork, representing the business in court, and providing legal advice. The cost of an attorney is often one of the largest expenses for a business filing for bankruptcy.

• Trustee Fees: A trustee is appointed by the court to oversee the liquidation of the business’s assets. While trustee fees are typically paid out of the proceeds from the liquidation, they may also be subject to approval by the court. These fees can range from $1,000 to $10,000 or more, depending on the complexity of the case.

• Costs of Liquidation: If assets need to be sold, there may be additional costs for the sale or liquidation process. This can include auction fees, appraisal fees, and costs for shipping and storage. These costs depend on the number and nature of the assets being liquidated.

• Additional Expenses: In some cases, businesses may need to pay for things like credit counseling, which is often required for Chapter 7 cases. These costs typically range between $50 and $200.

2. Chapter 11 Bankruptcy (Reorganization)

Chapter 11 bankruptcy is often used by businesses that wish to continue operating while reorganizing their debts. In a Chapter 11 filing, the business submits a reorganization plan to the court, which must be approved by creditors and the court. Chapter 11 allows the business to negotiate for more favorable terms on its debts and continue operations while it works on its financial recovery.

Costs of Filing Chapter 11 Bankruptcy:

• Filing Fees: The court filing fee for Chapter 11 bankruptcy is $1,717. This is significantly higher than the fee for Chapter 7 because Chapter 11 cases are more complex and involve more court proceedings.

• Attorney Fees: Legal fees for Chapter 11 bankruptcy are often the most expensive component of the filing process. Depending on the complexity of the case and the size of the business, attorney fees can range between $10,000 and $100,000 or more. This can include the preparation of the bankruptcy petition, creating the reorganization plan, representing the business in court hearings, and negotiating with creditors.

• Professional Fees: Chapter 11 bankruptcies often require the assistance of other professionals, including financial advisors, accountants, and business consultants. These professionals may charge hourly rates that range from $100 to $500 per hour, depending on their experience and the complexity of the case. In some cases, they may charge a flat fee for specific services, such as preparing financial statements.

• Trustee Fees: In a Chapter 11 bankruptcy, a trustee may be appointed if the business is not managing the case properly or if there are conflicts of interest. Trustee fees can be substantial and are typically paid out of the business’s assets. These fees can range from $5,000 to $20,000 or more, depending on the circumstances.

• Plan Confirmation Fees: If the business needs to propose a reorganization plan, there may be additional costs involved in preparing and submitting the plan. This includes drafting the plan, negotiating terms with creditors, and obtaining court approval. These costs can add up quickly and can range from $5,000 to $25,000 or more, depending on the size of the business.

• Additional Court Costs: As Chapter 11 cases are complex and often require multiple court hearings and motions, businesses can face additional costs for motions, filings, and other court proceedings. These costs can add up, especially if the case is contested or prolonged.

3. Chapter 13 Bankruptcy (For Sole Proprietors)

Chapter 13 bankruptcy is designed for individuals with regular income who want to pay off all or a portion of their debts over time. In some cases, small businesses run by sole proprietors may file under Chapter 13 if they meet certain income requirements and wish to reorganize their personal and business debts.

Costs of Filing Chapter 13 Bankruptcy:

• Filing Fees: The filing fee for Chapter 13 bankruptcy is $313. This is the base fee to start the process, and additional fees may apply for hearings or motions.

• Attorney Fees: Attorney fees for Chapter 13 bankruptcy tend to be lower than those for Chapter 11 bankruptcy, ranging from $2,000 to $5,000 depending on the complexity of the case.

• Trustee Fees: In Chapter 13 cases, the trustee is responsible for overseeing the repayment plan. The trustee’s fees are usually a percentage of the payments made by the debtor. This percentage can vary, but it is typically between 3% and 10% of the payments made.

4. Chapter 12 Bankruptcy (For Family Farmers and Fishermen)

Chapter 12 bankruptcy is designed for family farmers and fishermen to reorganize their debts and continue operations. This is a less common option for most businesses but may apply to specific industries.

Costs of Filing Chapter 12 Bankruptcy:

• Filing Fees: The filing fee for Chapter 12 bankruptcy is $275.

• Attorney Fees: Attorney fees for Chapter 12 bankruptcy are similar to those for Chapter 13 bankruptcy, ranging from $2,000 to $5,000 or more.

• Additional Costs: Like Chapter 13, businesses may need to pay for trustee fees, motions, and additional paperwork. Trustee fees are typically a percentage of the payments made.

Additional Costs to Consider

In addition to the above-mentioned fees, businesses filing for bankruptcy may face other costs:

• Credit Counseling: Both individuals and businesses are typically required to complete credit counseling before filing for bankruptcy. This is usually a one-time fee of about $50 to $100.

• Administrative Costs: Depending on the case, businesses may need to pay for administrative costs such as mailing, postage, or filing fees related to specific motions or hearings.

• Post-Bankruptcy Costs: After filing for bankruptcy, businesses may need to focus on rebuilding credit, reorganizing operations, and possibly selling assets. These efforts can incur additional costs.

Conclusion

The cost of filing for bankruptcy for a business can vary significantly based on the type of bankruptcy filed, the complexity of the case, and the size of the business. On average, businesses can expect to pay court fees, attorney fees, trustee fees, and potential costs for liquidation or reorganization efforts. Filing for bankruptcy can be expensive, but it may offer a necessary pathway to financial relief and recovery. Before proceeding with bankruptcy, it’s essential to evaluate the potential costs and consult with a bankruptcy attorney to determine the best approach for your business’s financial situation.