Why Saving Money Using A Bankruptcy Petition Preparer Doesn’t Save Money!

Recently, I attended a meeting of creditors for Chapter 13 debtors. There were two people there, each all alone, sitting nervously, waiting for their names to be called. Each had used a paralegal to “type” up their bankruptcy papers.

Paralegals who type up bankruptcy papers have a special name: Bankruptcy Petition Preparers. Each congratulated themselves on saving money by not hiring an attorney. The first man had spent $1800 on the preparation of his papers; the second man gleefully thought that he had spent less money than the first man by only spending $350. And then the questions by the Chapter 13 Trustee started.

Why had the debtor chosen the particular exemptions (laws that allow a debtor to keep some or all of personal or real property)? Had he listed all his creditors? Had he listed all his assets? Who was in his household?

As it turned out, Man #1 had not listed all his property and all his debts. He had to make payments on land still held in his and his ex-wife’s name by an order from the divorce court. And he had listed as a member of his household his new wife, who hadn’t lived with him in over a year. And he had not indicated that paralegal had helped him on his paperwork.

Man #2 had listed a truck as secured when he had refinanced his house and paid off his truck. While he had listed the paralegal’s assistance (and she had signed the paperwork), he had no idea why anything was or was not on his papers. He said that the preparer had suggested that Chapter 13 was the way to go as it was “the working man’s plan.”
The problem with using a paralegal is that a paralegal cannot give legal advice or advise a debtor on the consequences of checking one box on the form vs. checking another box on the forms. In the first case, the paralegal was paid far in excess of a typing service and didn’t sign the paperwork. In the second case, the preparer advised the debtor to file Chapter 13 and didn’t advise the debtor to seek legal advice. The second case involved owning a car with more equity than allowed for Oregon debtors.

What a shame. The men didn’t save money, as each was urged by the Chapter 13 Trustee to seek legal counsel quickly as their cases had huge issues to overcome and mistakes to correct. Each is having to undergo far more stress and uncertainty than if they had started out with an attorney at the beginning. What’s worse is that the Office of the United States Trustee is now involved, given the errors and oversights on their documentation presented to the Court as accurate.

Saving money? Now, each of them is in desperate need of an attorney–who will have to redo all their paperwork. The attorney fees are likely to be the same as if the attorney started the case. So, man #1 spent $1800 and man #2 spent $350. And each of them didn’t receive much benefit from those hard-earned dollars.