No one expects to be over their head in debt and thinking about bankruptcy. But sometimes there’s no other way out of your debt problems, and the only way to get your financial house in order is to wipe the slate clean.

Bankruptcy is designed to be a final option for resetting your finances, bringing your debt under control in an orderly fashion.

But debt freedom doesn’t come for free, so it’s important to understand the full scope of the costs you can expect when you file for bankruptcy.

We’ll deal with the emotional costs of bankruptcy first, then the financial ones.

The Emotional Costs of Bankruptcy

The biggest costs associated with filing for bankruptcy are those that don’t involve opening your wallet.

We’re accustomed to tying our financial position with our sense of self-worth. Historically this has been more pronounced for men because they were the breadwinners in the household. As more women entered the workforce over the past 30 years, the problem has become more widespread.

Bradley Klontz, a clinical psychologist and co-author of The Financial Wisdom of Ebenezer Scrooge: 5 Principles to Transform Your Relationship with Money, notes that the financial and psychological stresses involved in bankruptcy can lead to a loss of personal control, depression, anxiety, shame and relationship problems.

According to Stephen Ilardi, PhD, author of The Depression Cure, “In depression, social isolation typically serves to worsen the illness and how we feel. Social withdrawal amplifies the brain’s stress response. Social contact helps put the brakes on it.”

Some of the best ways to combat the psychological costs of filing for bankruptcy include:

Log out of Facebook. An article titled Is Facebook Making Us Lonely? details how social media is actually making us more isolated rather than more connected with one another. That isolation serves to increase depression and anxiety.

Get Out in the World. Take a shower, put on clean clothes and walk out the door. Sunshine lifts serotonin, a neurotransmitter that regulates your mood, creating a natural way to combat depression.

Talk With Someone Face-to-Face. A study published in the Journal of the American Geriatrics Society revealed that regular face-to-face communication reduces the risk of depression in older adults by half. Alan Teo, M.D., M.S., lead author, assistant professor of psychiatry at Oregon Health & Science University, and researcher at the VA Portland Health Care System, said:

All forms of socialization aren’t equal. Phone calls and digital communication, with friends or family members, do not have the same power as face-to-face social interactions in helping to stave off depression.

Stop Comparing Yourself to Others. Everyone looks happy, organized and wealthy on the outside. Even people who are less financially stable seem happier because they have more friends and deeper family connections. The problem here is that none of it is true. Everyone’s got their own problems; they just don’t share them with the world.

Put Together a Budget. A budget isn’t just a list of what you spend each month, it’s also a reflection of what you think is important. Writing it all down reminds you of your personal priorities while also giving you the sense that you’re regaining control of your life.

Emotional costs as well as financial ones come with filing for bankruptcy.Click To Tweet

Financial Costs of Bankruptcy

Most people think in dollars and cents when it comes to filing for bankruptcy, and with good reason – when they’re not enough money to go around, spending a lot of it to get out of debt seems counterintuitive.

Approach it properly and you’ll be able to bring costs in line to an amount you can afford without skimping on the quality of your results.

Credit Counseling.  The bankruptcy law requires you to complete a 20-30 minute credit counseling session – sometimes referred to as a “pre-bankruptcy” or “before you file” course – online or by phone. There’s no way around it, and the process should set you back less than $30. Here’s a list of agencies approved by the U.S. Department of Justice that can provide the required credit counseling session.

Credit Report Fee. Even if you think you know how much you owe and to whom, get your credit reports before filing for bankruptcy. This will minimize the chances of you leaving a debt off your bankruptcy schedules or notifying the wrong creditor.

By law, you’ve got the right to get copies of your credit reports from all of the three major credit reporting agencies once each year.  The official site for free credit reports from all three credit reporting agencies is annualcreditreport.com, so you should go there to save some money and get the information you need.

If you’ve already gotten your free credit report, you should get a new one from each of the three major consumer credit report agencies: Experian. TransUnion, and Equifax. The costs associated with a credit report are usually about $40 for all three combined into a single report.

Court Filing Fees. You’re going to have to pay a filing fee to the bankruptcy court when you file your case. Those fees vary according to what kind of bankruptcy you’re filing. Currently the filing fee costs are:

  • Chapter 7 – $306
  • Chapter 13 – $281
  • Chapter 12 – $246
  • Chapter 11 – $1,213

If you can’t afford the cost of the full filing fee at the time your bankruptcy case is filed, you can ask the court for permission to spread out those costs over time in installments. If that’s still above your means, you can apply to have the filing fees waived entirely.

Official Forms:

Financial Management Certification Fees. In addition to the credit counseling required to file your bankruptcy case, the law requires you to complete a Financial Management (or Debtor Education) course. You must complete the course within 45 days of your Meeting of Creditors or your case may be closed without a Discharge.

It should cost you less than $20 to complete this course, but the process can be exceptionally helpful. Click here for a list of agencies in your area that provide Financial Management courses certified by the Executive Office of the U.S. Trustee.

Legal Fees For Your Bankruptcy Case

I left this part for last because you’re not required to hire a lawyer. You can file your case on your own, represent yourself, and eliminate those costs entirely.

If you choose to go the self-help route, you can hire someone to type up the bankruptcy papers. Most courts have held that paying a typist more than $200 is overcharging, and always remember that they’re not qualified to give you legal advice.

You can opt to do all the paperwork entirely on your own, in which case you won’t pay any money – just time. All of the forms have been revised effective December 2015 (click here to get them official forms) to make it easier for people to draft their papers on their own.

Though it’s time-consuming, you may be able to handle a simple Chapter 7 case on your own. If you’re going to file a Chapter 13 case, I’d think twice about going without a lawyer. Most Chapter 13 cases filed without a lawyer are thrown out of court because they’re complex and require a deeper understanding of the law and local procedures.

Either way, deciding the best type of case to solve your debt problem is where the lawyer should come in. Talk with an experienced bankruptcy lawyer even if you’re not going to hire one for your case. The cost of a complete bankruptcy analysis can vary based on your local culture, but you should expect to pay up to $400. The money you spend on an attorney can save you a lot of time and money in the long run.

If you decide to hire a lawyer to represent you, the fees are going to vary depending on the type of case you need to file and the complexities of your situation. For a Chapter 7 case, legal fees can range from $900 all the way up to $5,000 for a bankruptcy involving business matters.

For Chapter 13 cases, the legal fees are usually a blend of flat fees for routine work and hourly rates for more complex tasks.  Many courts have adopted a no look fee that dictates acceptable fees that bankruptcy lawyers are allowed to charge in for such routine work.

One thing worth mentioning is that the lawyer with the lowest fee isn’t necessarily your best option. A lower legal fee may mean that the attorney is less experienced, less qualified or delegates more of the complex analysis to other people.

Whether you decide to meet with a bankruptcy lawyer for an analysis of your situation or full-blown representation, do your research. Make sure they’ve got a level of experience that makes you comfortable, and that you’re going to be given a level of service that fits with your needs.

If you can’t afford the full legal fees right away, ask about whether the attorney offers a payment plan. Chapter 7 legal fees need to be paid in full before your case is filed (unpaid legal fees would be wiped out at the end of your case), but some Chapter 13 fees may be paid after the case is filed.

Understanding the Costs Allows You to Prepare

Not all of the costs associated with bankruptcy involve out-of-pocket expenses. The financial costs aren’t trivial, but can be managed with careful planning and making choices based on your goals.

As far as the emotional costs of bankruptcy, recognizing them will help you recover quickly so you can thrive once you’re debt free.