Bankruptcy Petition Preparers. Should you hire one?
Let’s face it. Folks with financial problems aren’t exactly flush with cash.
So it’s tempting to cut corners in purchasing legal advice and to opt for the services of a bankruptcy petition preparer. But as with most things, you get what you pay for.
Preparers really can’t–at least if they follow the law–do much of anything except serve as data entry clerks.
Most notably, they can’t:
- Give legal advice–including advising debtors whether to file or what chapter to file; or
- Advise debtors about what exemptions to claim (state, federal, or what state’s exemptions apply).
They’re also subject to state unauthorized practice of law statutes. As the U.S. Trustee’s office states, “bankruptcy petition preparers can only type documents and must charge a reasonable fee.” And you’re supposed to tell them what to type!
Section 110 of the Bankruptcy Code is devoted to them, the problems they cause, and what you can do if you’re harmed by one to get compensation for your damages–assuming, of course you can find the preparer and he’s collectible.
Interestingly, courts set a very low value on the services of petition preparers. The Bankruptcy Court for the Eastern District of Michigan limits a preparer from charging more than $100 without filing a request with the court. Likewise, the Northern District of California limits preparer fees to $150, along with publishing guidelines specifying what a petition preparer may and may not do. Numerous other courts have also limited compensation to similar nominal amounts. Courts, therefore, don’t place much value on the services of bankruptcy petition preparers. And bankruptcy judges have first hand knowledge of the quality and value of bankruptcy petition preparers work.
The United State Trustee’s Office frequently takes action against preparers. Preparers are unlicensed, unregulated, uninsured and are often the subject of U.S. Trustee enforcement action. For one example, read Craig Andresen’s post entitled, “Bankruptcy Petition Preparer Slammed by New Mexico Bankruptcy Court.”
Hiring a Bankruptcy Petition Preparer is a Really Bad Idea
I’ve been licensed as an attorney now for 18 years, and I’ve practiced law for 16 years. (I worked as a judicial law clerk for the first two years.) I’m licensed in two states, and, because of the strict requirements of the state in which I practice now–South Carolina–I had to take the full bar exam (multistate, federal, and professional responsibility) and attend a three-day “Bridge the Gap” course prior to being admitted. All this followed ten years of practicing law in Michigan, which, in turn, followed seven years of higher education–three of which were solely dedicated to the study of law.
Throughout my career, I’ve done a substantial amount of family law, criminal defense, and litigation. I’ve also practiced bankruptcy law throughout my career and now solely practice in that area. Bankruptcy law is–by far–the most legally complicated area of law in which I’ve practiced. This is compounded by the bankruptcy “reform” act passed in 2005. The law is poorly written–perhaps the most poorly written statute ever passed by Congress–and, consequently, is applied very differently from bankruptcy district to bankruptcy district and even sometimes differently by judges within the same district. Bankruptcy law is complicated–very complicated.
Think About This
You stand the to gain the most from filing bankruptcy, not your lawyer, your trustee, or your bankruptcy judge. (See “Bankruptcy Clients Make More than Bankruptcy Judges and Lawyers.”) Clients I see are discharging substantial sums of debt–most hundreds of thousands–some millions. The real benefit goes to the client. And even if you only have $20,000 of debt you’re discharging, getting rid of that debt is a huge relief. Why hire a bankruptcy petition preparer who isn’t qualified to give you legal advice and who answers to no one? Why try to save $1,000-$3,000 on legal fees (in most cases) when you’re trying to discharge many many times more than this in debt? It makes no sense.
Hiring a bankruptcy petition preparer is a really bad idea. And it’s not a cost-effective use of your hard-earned money. Instead, hire an experienced bankruptcy lawyer to guide you through the process.
