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Who Pays For Bankruptcy?

The answer to the question “Who pays for bankruptcy?” depends on the context. To initiate the process, obviously the person who is making the filing – be it the debtor or the creditors (involuntary bankruptcy) – pays the fees. However, if the question is meant to ask “Who pays for the discharged debt from a bankruptcy?” the answer is ultimately the American taxpayers in most cases. Of course if the question relates to a Chapter 13 bankruptcy, no money is actually lost at all, instead the debt is essentially just restructured by the court and the amounts owed should be paid off by the time the case closes.

To file for a basic Chapter 7 bankruptcy, the petitioner has to pay court fees of $299 to initiate the process. If this is too much, the courts can allow the petitioner to pay this amount in installments and in some extreme cases can waive the fee altogether (but only if the petitioner can show his income is less than 150 percent of the poverty level). On top of this, the petitioner has to show proof that he or she underwent credit counseling within 180 days of filing the petition and this proof usually costs extra money. Further, since bankruptcy law is extremely complex, it usually pays to hire a bankruptcy attorney in order to achieve the best outcome. On average, most individual Chapter 7 filings in the United States end up costing about $2,000 paid by the debtor.

If the question related to who pays for the discharged debt, the answer is ultimately the American taxpayers. The creditors whose debt is discharged by the bankruptcy courts write this amount off their books as after discharge it is wholly uncollectible. However, these same creditors usually write this off as a business loss, which is – more often than not – deducted from the creditor’s corporate income taxes. This deduction means less money paid in taxes, so the debt is ultimately covered by the government and thus the taxpaying public.

Speaking to a bankruptcy is a good idea if you are faced with the prospect of having to file for bankruptcy. Learn more from an Irvine Bankruptcy Attorney at
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