When someone is considering filing for bankruptcy, they may search online for quick and easy answers. One result that may come up is an online bankruptcy petition self-preparation software product or application, as opposed to a bankruptcy attorney. Using an online bankruptcy petition self-preparation company may seem both cheap and easy, but if you look closer and read the fine print, you will see many significant, potential problems that can arise if you use one. When using such a company, a debtor is provided with online software that will allow them to complete a bankruptcy petition and required schedules based on the information that they must input. However, the online software provider which includes companies such as Upsolve, 1clickbankruptcy, and qwikfile cannot provide any legal advice on bankruptcy. All these providers can do is enable a debtor to type in the information needed for the preparation of a bankruptcy petition. Filing a bankruptcy petition is very serious and can have major financial consequences, and to do so without consulting an attorney is rarely a good idea.
Filing for bankruptcy with an experienced attorney is the recommended route when a debtor is contemplating bankruptcy. In contrast to online bankruptcy petition preparation software, an experienced bankruptcy lawyer will explore all legal options for a debtor facing financial difficulty, explain the bankruptcy chapters available to the debtor, evaluate what assets a debtor can properly exempt and protect in the bankruptcy, and consider other issues that can arise in a bankruptcy filing. A software provider cannot offer any of these benefits. As a result, debtors who file for bankruptcy with an attorney fare far better than those who file without an attorney (also called filing pro se).
Online bankruptcy self-preparation service providers claim that for a very low fee they can help debtors file for bankruptcy. While this on its face may be true, there are many problems that may result from using such a service:
- As mentioned above, they are not allowed to give legal advice (and are required to tell you that they are not attorneys).
- They cannot provide advice as to what bankruptcy exemptions a debtor should claim or what property a debtor may exempt. Not claiming the proper applicable exemption can place an asset at risk of seizure or liquidation by a bankruptcy trustee. Just as damaging can be filing for bankruptcy and not realizing that there is no available exemption or enough of an exemption to protect an asset in a bankruptcy case. An example of this can be filing a bankruptcy petition with too much equity in a house or money in a bank account or stock in a brokerage account that there isn’t an exemption for or a sufficient exemption.
- They cannot advise a debtor regarding the applicability of bankruptcy means test and how it is computed. The means test is a budget test required for most bankruptcy cases when the debtor’s household income is above the median income for their household size. Properly computing the test is more than just inputting figures into a software application. One has to know what income to input and what deductions can properly be used. Filing for chapter 7 bankruptcy with an inaccurate means test result can result in dismissal of the case or force a debtor to convert to chapter 13 bankruptcy, which has a required payment plan to pay back a certain amount of debt to creditors.
- They cannot advise as to whether a debtor should file for Chapter 7 bankruptcy or Chapter 13 bankruptcy and the possible benefits and negative consequences of each one. Filing for the right bankruptcy chapter for a debtor’s particular circumstances is extremely important and filing for the wrong chapter can have serious negatives consequences. In addition, for those filing for chapter 7 bankruptcy, pursuant to 11 U.S.C. § 707(a), once a chapter 7 bankruptcy petition is filed it cannot be withdrawn without court approval and only “for cause” in very narrow circumstances. As such, if a debtor makes a mistake and files for chapter 7 bankruptcy with too much equity in a home, bank balances that are too high or has a personal injury claim that is above the exemption limits, they cannot simply withdraw their petition as if nothing ever happened.
- A bankruptcy petition preparer cannot advise or prepare a debtor for the mandatory 341 meeting of creditors. At the meeting, a debtor will be questioned under oath by the assigned bankruptcy trustee. That trustee will typically verify the debtor’s identity, and ask them questions regarding assets set forth in their petition and possible assets not identified in their petition. They will also ask questions regarding claims they may have such as a personal injury claim or the right to receive money, any payments to creditors (including family and friends) that may be improper preferences and any previous transfer of assets. Creditors, it should be noted, do not typically appear at this hearing, but they may. Additionally, the United States Trustee has the right to ask questions of any debtor. The U.S. Trustees are a component of the U.S. Department of Justice and are distinct from the bankruptcy trustee assigned to your case. They monitor the conduct of parties in a bankruptcy, oversee administrative function in the Bankruptcy Court, and act to ensure compliance with applicable laws and procedures.
- A bankruptcy petition preparer who advises a debtor about how to complete the bankruptcy petition and schedules may be engaging in the unauthorized practice of law. If this advice is incorrect or if the debtor’s own interpretation of the bankruptcy laws is incorrect, they may lose assets, certain debts may not be discharged, and they may have to pay money or turn over assets to the Trustee for distribution to creditors. The bankruptcy petition preparer cannot represent a debtor in a bankruptcy case, and a debtor would face the consequences of any errors or omissions on their own.
