Why does Chapter 11 Bankruptcy Cost so Much?

February 25, 2019

I hear the same question frequently: why does Chapter 11 bankruptcy cost so much? Chapter 11 bankruptcy always costs much more than the conventional Chapter 7 or Chapter 13 case. The reason why Chapter 11 costs so much is because it is extensively-monitored and always “custom” in nature.

Chapter 11 Costs So Much Because it is Extensively-Monitored

Chapter 11 costs so much because it is extensively-monitored by the United States Trustee’s office. In fact, a good part of the initial filing fee goes towards the first payment of this cost. In many Chapter 11 cases, the United States Trustee will directly conduct the initial meeting of creditors. The United States Trustee will monitor the entire case, requiring a quarterly or monthly payment for these services. Public reports that the United States Trustee will review will also be required to be filed each month. The monthly operating reports also cause the total cost of the case to increase, making the case even more expensive.

Almost every aspect of a Chapter 11 case must be monitored and conducted with court-approval. This also requires the expensive and time-consuming necessity of filing first-day motions, various public reports, and a host of other requirements. In addition, almost all Chapter 11 items require an in-person, Judge-approved court hearing to occur. Truly on every level – from public reports to Judge and United States Trustee supervision – every aspect of Chapter 11 is meticulously monitored, increasing the cost of the case.

Chapter 11 Also Costs So Much Because it is Always “Custom” in Nature

Chapter 11 costs so much because it is almost always entirely “custom” in nature. There are virtually no “cookie-cutter” cases that use the same process that can be quickly replicated. This aspect of Chapter 11 is probably the most cost-generating aspect of the endeavor. Essentially, all plans of reorganization are “custom” negotiated and drafted to be presented to the court. This makes the entire process of Chapter 11 very expensive to complete.

Certain defaults plans do actually exist such as local small-business reorganization plans. Also, your attorney can usually take advantage of the process they have used in the past (or can also examine what other local firms are doing in that district with the public record and local rules). Form sets are also available through programs to speed up the process. Even with all these attorney resources, the process is still a unique and “custom” in nature to avoid high legal expenses.

Chapter 11 Costs How Much Usually?

Your type of case and geographical area will usually determine how much Chapter 11 costs more than anything else. The court cost (filing fee) for a Chapter 11 case is currently $1717. In addition to this, there will be a periodic fee (usually quarterly) that must be paid to the United States Trustee’s office during the entirety of the case. Attorneys can frequently charge $25,000 to $50,000 as a retainer on Chapter 11 cases. Usually, additional fees will be required later in the case if they are court approved.

The cost of a complex Chapter 11 case can GREATLY exceed these amounts, sometimes ranging into the hundreds of thousands or even millions upon completion of the case. In addition, very simple Chapter 11 cases can sometimes occur for less than the amounts stated above. It would be extremely rare, however, even in the most simple of cases for an attorney to charge less than $5,000 to $10,000 for an initial retainer (with further billing to follow). Chapter 11 usually always costs considerably more than it’s Chapter 7 or Chapter 13 counterpart, regardless of the situation.

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