What About “Do It Yourself” Bankruptcies?
In my career clients sometimes will ask “why can’t I just file bankruptcy on my own?” My answer is always the same, “if your arm was broken, would you reset the bone yourself or go to a doctor?” Clients always say “I’d go to a doctor” This is the exact same situation, your financial life is broken, go to the doctor so it can be fixed.
Herrin & Wright are financial doctors and specialize in fixing broken financial bones.
The law allows clients to file bankruptcy on their own, if they choose, this is called filing Pro Se, which is latin phrase meaning “for oneself”. In the United States we all have the right to represent ourselves in legal matters, which is why that right is extended in the Bankruptcy Code, but it is a harmful choice.
Navigating a bankruptcy without proper legal guidance can have long term financial effects, this article will help identify some of those effects to dis-spell the myth that representing yourself in a bankruptcy is a smart decision. You need to hire an attorney to represent you whether you are considering to file a chapter 13 or chapter 7.
REASONS WHY YOU MAY BE THINKING YOU CAN REPRESENT YOURSELF
- Do not own a home
- Do not own a vehicle
- All my debt is old
- The only debt I owe is credit cards
- I know someone who works in bankruptcy that can help me
- I found this company that I can pay to prepare all my paperwork
- I’m smart and I can read the instructions on the Court’s website and do this correctly
MYTHS TO THOSE REASONS
- Just because you do not own a home does not mean you have a simple case, debt can be complex regardless if it is linked to a significant asset such as a home or vehicle. Your assets, all the property you own in the world, real and personal, are protected in bankruptcy through applying exemptions. Exemptions is a legal concept that puts a “force field” over a particular item (like a 401K retirement plan). Without applying the proper exemptions, depending on which chapter you filed, you could lose that property. For example, in a chapter 7, if an item is not exempt it means the Chapter 7 Trustee can physically take that item and sell it to get cash to pay your creditors. On the other hand, in a chapter 13 you will be allowed to keep the item but you will have to pay its equal value to your creditors. But, if you exempted it correctly you potentially would have been able to avoid this situation.
- The same answer above applied to this, but lets assume you own a vehicle and you are behind on that vehicle and want to keep it. Often times Pro Se debtors will file a chapter 7, but in this scenario you would not be able to keep your vehicle because the only way to keep a vehicle in a chapter 7 is to be current on your payments at the time of filing, so if a debtor is not current at the time of filing that debtor should be filing a chapter 13. Pro Se debtors are not familiar with the different chapters, the eligibility requirements, etc. Because of this lack of knowledge a Pro Se debtor could end up losing something own simply because they filed the wrong chapter when in the beginning if they were with an attorney they might have been able to save what they really wanted.
- Even if your debt is old it does not mean you will have an “easy” bankruptcy. In fact, one could argue there is no easy bankruptcy. All creditors have a right to appear and demand payment on debt that it is owed. Your attorney will determine the proper treatment of a creditor, which in turn will give you the benefit you are wanting a discharge of the debt that you do not need to pay and the preservation of the property that you want to keep. Moreover, creditor attorneys can take advantage of a Pro Se debtor’s lack of knowledge and get a debtor to agree to a certain treatment that unfairly prejudices them and you will not be able to claim lack of knowledge a defense when you inevitable discover the unfair treatment. Lawyers are going to expose the situation and advocate for what’s best for their client, that is why you need a lawyer who can equally fight for what’s best for you.
- It doesn’t matter what type of debt you have, the risks discussed above can happen regardless of the type of debt. All debt in your bankruptcy needs to be taken seriously.
- Most of the time when I hear a client state they know someone who works in bankruptcy they are speaking about a paralegal who works for a bankruptcy firm. Attorneys will not “help you” without a clear client-attorney representation agreement because once an attorney is attached to a case they have a duty to represent that client. Although paralegals can be knowledgeable about bankruptcy, they cannot represent in court and cannot sign your agreements and they are not authorized to practice law in any state. As a result this is a situation that can cause the court to dismiss your bankruptcy and block your discharge because you are taking advice and allowing someone to work on your case who is not authorized to practice in the court in which you filed your bankruptcy. In addition, just like an RN is not going to know how to deal with every possible situation in a medical situation, paralegals do not know all of the intricacies of the bankruptcy code and cannot adequately provide full competent representation to you.
- THIS IS A SCAM and must be avoided at all costs. Moreover, you should notify and attorney, the Trustee, or the court if you are contacted by one of these companies. It is illegal for a company to prepare documents that will be filed in Federal Court on your behalf and not be an attorney that is representing you. I know it seems harmless but it is illegal and you can be jeopardized if you partake in one of these scams.
- Hiring a professional that dedicates his or her life to bankruptcy does not mean you are not smart, it means you are correctly using the tools at your disposal to achieve the best result for yourself. Law is complicated and there is a lot that can happen in a bankruptcy; it truly boils down to the fact that when you are injured you see a doctor, when you it comes to laws you see a lawyer.
There are a whole host of pitfalls that can occur; this is a list of some of the most common problems a Pro Se debtor can encounter. It is also important to note that Judges do not treat Pro Se debtors with any sort of leniency, you are expected to know the answers that the attorneys who regularly practice in their court know. Laws are interpreted strictly and most of the time you only have one chance to present your case in court, if you present the wrong case the consequence of that could be losing property that you originally were entitled to keep, you may have to pay creditors that you were originally not required to pay, or you could have you entire bankruptcy case dismissed and you would can lose property and have to pay all of your creditors.
Bankruptcy is practiced in Federal Court and the code is a Federal Law; this is a very serious subject matter and it is in anyone’s best interest to seek an attorney to help them successfully get through the process.