Be Careful Filing Bankruptcy Yourself or With a Preparation Service

1. Bankruptcy Preparation Service Companies Are Not Substitutes For Bankruptcy Lawyers

With the downturn in the economy and with many individuals struggling to make ends meet, companies, often referred to as “bankruptcy preparation service” companies or “bankruptcy preparers,” entice desperate individuals (“debtors”) by offering to file bankruptcy petitions for only $299 or so. This does not include the $299 filing fee. Often these companies use the same bankruptcy software programs as used by bankruptcy attorneys and request that the debtors input information onto a website, which information is then downloaded directly into the bankruptcy petition and schedules.

Simply because the bankruptcy petition and schedules are comprised of forms that can be completed, however, does not mean that the completion of such forms guarantees a successful bankruptcy. In fact the opposite is often true, as discussed in part 3 below. Bankruptcy preparers are not attorneys and cannot provide legal advice and lack the experience and training to properly assist debtors.

2. Because Of The Complexity Of Bankruptcy Law, It Does Not Take Much For Things To Go Wrong

This is particularly true given the complexity of the current Bankruptcy Code, coupled with the Bankruptcy Rules, Local Rules of the particular Bankruptcy Court and Rules of the Judge’s Chambers. Among other things, there are a whole host of statutory provisions that impose strict time periods that can be easily overlooked, especially for a layperson. As such, it does not take much for things to go wrong.

The Bankruptcy Code was recently amended (as a result of The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA)) in large part to limit the number of people who could file for bankruptcy so that only persons who were truly in financial need could file. Accordingly, each petition is carefully reviewed by the Office of the United States Trustee, an agency of the Department of Justice, to make sure that the individual qualifies for bankruptcy. If, among other things, the petition and the schedules are completed inaccurately or if certain time periods are not complied with, a debtor runs the risk that his or her discharge will be denied or the case will be dismissed. (Visit http://www.justice.gov/ust and http://www.uscourts.gov/FederalCourts/Bankruptcy/BankruptcyResources/FilingBankruptcyWithoutAttorney.aspx for more information.) Additionally, debtors often fail to realize that the process only begins with the filing of the bankruptcy papers and that they will be questioned under oath at a “341 meeting” by a chapter 7 trustee (an attorney appointed to represent the interests of the creditors) on the information contained in the schedules and petition. (Typically, the bankruptcy preparation service company would not attend the 341 meeting and would not in any event have the legal expertise to adequately represent the debtor.) This can likewise result in complications and delay with respect to the case if a debtor is not represented by seasoned bankruptcy counsel.

3. Two (2) Recent Chapter 7 Cases That Were Dismissed Because The Debtors Used Bankruptcy Preparers

I recently received two calls in the same day from two unrelated couples. Both couples were almost in tears because their bankruptcy cases had been dismissed.

Incomplete/Incorrect Petition

The first couple paid $399 for a bankruptcy preparation service to file their forms. The company had this couple input all of the information needed for their petition and schedules to a site online. The company downloaded this information into the bankruptcy software and created a petition and schedules from this information. Everything was done online. The couple never spoke to the bankruptcy preparer. After the case was filed, the Office of the United States Trustee dismissed the case.

With the couple on the phone, I reviewed their schedules and petition that were filed online with the court and noticed immediately that they only reflected $500 as an expense for food on schedule J, which is a list of expenses. That seemed particularly odd to me given that the couple had five (5) children. I would have expected to see at least approximately three times that amount. I also noticed that they listed their home, but failed to list their mortgage or a second car on the schedules.

I then pulled the United States Trustee’s motion to dismiss and noticed that the motion was based in large part on the fact that the couple was showing excess income of $350 per month and that the petition and schedules did not appear to be completed correctly. The United States Trustee advised the couple to retain a lawyer if they chose to file again. By not retaining a lawyer in the first place, they ended up losing the $399 spent for the bankruptcy preparer and $299 spent on the filing fee. They also ended up missing a few days of work to attend multiple 341 meetings and a court hearing and worst of all, their case was dismissed and they lost precious time.

No Legal Advice

The second couple that contacted me that day paid approximately $299 to a bankruptcy preparation service along with $299 for the filing fee. Their case was dismissed because they each had filed a chapter 7 bankruptcy case less than 8 years ago. Had they waited two months, they would have been fine. (The bankruptcy code prohibits the granting of a discharge to a debtor who filed for bankruptcy within 8 years of the filing of a subsequent case.) They were upset that the bankruptcy preparer did not advise them of the 8 year rule. However, these companies do not provide legal advice. They simply offer the mechanical service of filing your case.

4. Accordingly, It Is Recommended That You Retain A Seasoned Bankruptcy Lawyer BEFORE You File For Bankruptcy

The couples that contacted our offices who are described in part 3 above attempted to file for bankruptcy by taking what they thought to be the less expensive route. It turned out to be the slowest and costliest route, which ended up being the wrong direction. They spent time and money and they are no further ahead than they were months ago. They have to start from scratch. So, it is strongly recommended that if you are considering bankruptcy, speak to and retain a seasoned attorney.

The foregoing does not constitute legal advice and/or create an attorney/client relationship.

From the author: New York Bankrutpcy Attorneys, Lieber & Lieber, LLP

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