Bankruptcy Document Preparation by Non-Lawyers

By / / Economic Trends / 5 minutes of reading

Bankruptcy Document Preparers Raise Concerns

Concurrent with the increase in U.S. Bankruptcy Court filings, the federal bankruptcy courts are expressing greater concern with abuses and errors committed by non-lawyers who engage in the business of helping prepare bankruptcy filing documents.

With the cost of legal representation soaring to all-time highs, more people who seek bankruptcy protection are doing so “pro se” or with the help of non-attorney preparers. Federal bankruptcy law permits them to engage non-lawyers to prepare petitions for them. The law defines a “bankruptcy petition preparer” (BPP) as “a person other than an attorney for the debtor or an employee of such attorney who prepares for compensation a document for filing.”

Bankruptcy Document Preparation Abuse

Many preparers operate within the strict limits the law imposes; others do not.

According to U.S. Bankruptcy Judge Maureen Tighe, of the Central District of California, “We have seen an increase in abuse. The increase in ‘foreclosure rescue’ and ‘loan modification’ services seems to be the source in the past three years. The homeowners are desperate and take advice from the most questionable sources. There is a wide range of BPPs, from those who are well-meaning but still are giving legal advice, to out-and-out fraud perpetrators—and the down-and-out consumer debtor doesn’t know the difference most of the time.”

According to Legalzoom, a prominent law firm based in the US, several petition preparers have been fined in the Central District of California, for, among other things, the unauthorized practice of law and collecting higher petition-preparation fees than the $200 allowed by the bankruptcy court. (Note: Petition-preparation fee limits vary in the 91 U.S. bankruptcy courts.)

“I have had debtors who have paid thousands of dollars for assistance that was useless or non-existent,” Tighe said.

Bankruptcy Document Preparation May Fail

A locally focused report recently presented by Tighe’s court includes a troubling finding: “While self-represented debtors receive discharges at a lower rate than represented debtors, the group that did not personally file the cases at the courthouse had their cases dismissed at double the already high rate.”

That astounding finding appears to correlate reliance on BPPs with failure of the petition. Earlier studies have shown that the vast majority of debtors referred to as “pro se” filers are, in fact, assisted by BPPs. “A 2003 study by the U.S. Trustees Program reported that only 3 percent of debtors filing were truly pro se . . . At the time of the study, 23 percent of all debtors used a BPP to file,” the bankruptcy court report said. “This may have changed recently due to the presence of self-help desks in every division. Court forms and rules require BPPs to disclose their involvement, but the court has reason to believe that approximately half of them fail to do so.”

Bankruptcy Document Preparers Sentenced to Jail

In Maryland, a BPP was sentenced to two years in prison to be followed by three years of supervised release for contempt of court for continuing to offer his services after being barred from doing so. In New Mexico, a BPP was permanently banned from helping debtors after being cited with violations in nine separate cases. In Colorado, the bankruptcy court imposed more than $42,000 in sanctions against a bankruptcy petition preparer.

The Eastern District of Wisconsin bankruptcy judges have cited four BPPs with contempt and referred the cases to the U.S. District Court to determine whether criminal charges should be filed against them. “Unethical preparers who are serial filers are a problem for us,” said Bankruptcy Judge Margaret Dee McGarity in Milwaukee. “We have a pro se help desk staffed by volunteer attorneys, and a designated person in the clerk’s office to help get all the right papers filed. But we need to provide even more assistance.”

Over the past five years, McGarity’s bankruptcy court, which limits the fee a BPP can charge to $75, has barred seven individuals from preparing petitions. But some preparers do not sign the petitions as required by law, and tell their clients not to tell the court about the help they received.

Eastern District of Wisconsin Chief Bankruptcy Judge Pamela Pepper noted in a memorandum, prepared for a meeting on pro se debtors, that anyone filing papers now must produce a driver’s license, a copy of which is placed in the court file—an effort “to identify people who are filing petitions for someone else.”

Bankruptcy Document Preparers Can’t Provide Legal Advice

The U.S. Trustee Program, part of the Department of Justice, features a warning on its website for those who might seek help filing for bankruptcy protection.
Non-attorney bankruptcy petition preparers may type bankruptcy documents with information supplied by the debtor. They may not provide legal services, such as helping you choose whether to file under Chapter 7 or Chapter 13 or identifying your property that is exempt from the reach of creditors,” it states.

Bankruptcy petition preparers may advertise their services under ‘document preparation services’ and similar categories of services, but not under ‘legal services.’ If a bankruptcy petition preparer offers to provide legal services to you or fails to disclose that he or she is not an attorney and may not provide legal services, please report this to a U.S. Trustee Program field office.

In Arizona, the state Supreme Court certifies document preparers—including BPPs—but such state regulation is not available in all states.

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Photo Source: by mikecogh  Bankruptcy Filing

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