Beware of the Bankruptcy Petition Preparer

A genuine help or your worst nightmare.

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Bankruptcy Petition Preparers can be useful tools for pro se filers, or they can wreak havoc on unsuspecting debtors. Getty Images

Do you know what the term Pro Se means? Yes, it's one those archaic Latin terms that lawyers are fond of throwing about. Literally, it means "for oneself". In legal circles, it refers to a party or a litigant who is not represented by an attorney.  

What does this have to do with bankruptcy? Well, according the American Bar Association, the growth rate of pro se filings is twice that of regular or attorney-represented filings.

  

The highest percentage of pro se filers are in the Central (27.1 %) and Eastern Districts of California (16.5 %). In fact, when you look at the AO's map, the states with the highest percentage of pro se filers are clustered in the West. The South, on the other hand, has a high number of states with low percentages. The AO notes that the South has a high rate of Chapter 13s. It does not speculate on the correlation, but one might venture to guess that pro se rates are lower because Chapter 13 cases are more intimidating. The AO does note another geographic trend: pro se rates are also high in states that were particularly hard hit by the foreclosure crises.

Are all these pro se filers actually filing without assistance?  A 2003 study by the US Trustee Program, referenced in an article in The Third Branch, found that the vast majority of pro se filers received some sort of assistance.  Approximately 23% of all debtors used a bankruptcy petition preparer (BPP).

The Bankruptcy Code specifically sanctions the use of nonattorney document preparation services. It defines a Bankruptcy Petition Preparer as "a person other than an attorney for the debtor or an employee of such attorney under the direct supervision of such attorney, who prepares for compensation a document for filing".

 See 11 U.S.C. Sec. 110.  

While the Code may sanction the use of a BPP, it also highly regulates them.  The Code specifically addresses all of these issues:  The BPP 

  • Must sign the document.
  • Must have the debtor sign an official written notice that the BPP is not an attorney and cannot give legal advice.  The BPP must also sign the notice under penalty of perjury.
  • Cannot give legal advice concerning choice of bankruptcy chapter, speculate on outcomes, tax consequences, dischargeability of taxes, reaffirmations, characterizing the nature of the debtor's interests in property or the debts, bankruptcy procedures and rights.
  • Cannot advise the debtor to exclude assets or income, to use a false Social Security number, fail to inform the debtor that the debtor is filing for bankruptcy relief, or fail to disclose his identity.  
  • Cannot use the word "legal" or a similar term in advertisements or advertise in a category that includes the work "legal" or a similar term.  
  • Cannot collect court fees for filing the petition.
  • Cannot commit a fraudulent, unfair or deceptive act. 
  • Must inform the debtor of any maximum fee prescribed by the Supreme Court or the Judicial Conference.
  • Must file a declaration under penalty of perjury regarding any fee received by or on behalf of the debtor within 12 months prior to filing the case and certify that the BPP complied with the fee notification requirement.

    The US Department of Justice Office of the US Trustee for the Central District of California has issued guidelines for Bankruptcy Petition Preparers.

    Many courts and others in the bankruptcy system have raised concerns over the growing use of Bankruptcy Petition Preparers, and cite increased actions taken to enforce the rules and discipline unlawful practices. 

    BPPs can be fined for violating any of these provisions, with fines tripled for certain particularly heinous acts, and ordered to pay damages to the debtor, including attorneys fees and costs, and can be enjoined from acting as a BPP.  

    The ultimate sanction perhaps is federal prison.  The Bankruptcy Code has no specific criminal sanctions, but when BPPs are repeatedly fined and held in contempt for continuing to violate the statute, they can be charged and convicted of criminal contempt.

     See, for example, the case of Derrick Hills:  Bankruptcy Petition Preparer Gets Sentenced to Nearly 4 Years in Prison.