Installment Filing Fees in Chapter 13: Use Caution

The filing fee for a Chapter 13 bankruptcy is $281.00, which is due to the United States Courts the instant a case is filed. However, a bankruptcy court may authorize a debtor to pay the filing fee in installments paid after filing the case. Installments offer intuitive appeal--it's a way to shift some of the cost into the future, and is one way to get started in bankruptcy with little or even no money down.

However, in a chapter 13 bankruptcy, a filing fee installment payment plan can be a risky proposition. Remember, it is essentially a loan from the court itself. While practically speaking, some jurisdictions grant installment payment applications fairly freely, a debtor must still make an application to pay the filing fee in installments. Under Bankruptcy Rule 1006(b)(1), this application must include a declaratory statement "that the debtor is unable to pay the filing fee except in installments."

This is not a costless declaration in chapter 13. Confirmation of a Chapter 13 Plan requires a showing that "the debtor will be able to make all payments under the plan" (the feasibility requirement of Section 1325(a)(6)). The installment payment application declaration might shed doubt on the ability to make payments, particularly if those payments are relatively large. If one should miss an installment payment on the filing fee, the court has cause to dismiss the bankruptcy case. Beyond that, it can make it difficult to prevent a creditor from obtaining court permission to foreclose a home or repossess a car. A bankruptcy judge is likely to be skeptical of any promises to pay if the debtor has already broken a promise to pay the court itself a modest installment on a filing fee.

The best time for installment fee payment applications is when something is changing from the date the case is filed to a few weeks after the case is filed. A classic example is a wage garnishment that is constricting the debtor's income, but is stopped by the bankruptcy filing. In such a case, the declaration of a temporary inability to pay the filing fee is not so troubling precisely because it was temporary. Another example might be when a case is so urgent to file that the debtor simply cannot wait for another paycheck to file. Even then, the best practice is to pay the full fee as rapidly as possible to demonstrate that the inability to pay was only temporary.

It's important to note that the considerations mentioned so far are distinctly chapter 13 bankruptcy considerations. In chapter 7 bankruptcy, the lack of ability to make payments is not such a problem, especially if there is not a need to reaffirm a car or other secured debt. (Note that a reaffirmation of a loan so that it survives bankruptcy usually requires documenting an ability to pay the loan afterwards). In chapter 7 bankruptcy, if there is no urgency on the filing date, many debtors will simply wait and save up the filing fee. This avoids the risk of missing an installment and getting dismissed out of the bankruptcy.