Beware of Bankruptcy Petition Preparers

Every now and then, a debtor will appear in bankruptcy court on a case that is set to be dismissed. The nervous debtor will stand at the podium, and the judge will ask the debtor why he or she has not filed certain required papers within the time prescribed by the Bankruptcy Code. The debtor will likely appear flustered, “I don’t know, Judge.” The judge will ask some more questions, and the debtor will often reveal that he or she does not have an attorney, but rather has paid a non-attorney bankruptcy petition preparer (BPP) a non-trivial sum of money to help them file for bankruptcy.

Unfortunately, in many of these cases, the judge will have no choice but to dismiss the debtor’s case because various statutory requirements have not been satisfied. The debtor will inevitably be very disappointed, as he or she will not receive a discharge of their debts or a refund of their filing fee.

Needing to file for bankruptcy can be an overwhelming experience. Hiring a BPP instead of a bankruptcy lawyer in order to save money may seem like a good idea. While it is not illegal to hire a BPP, it is not always wise. Section 110 of the Bankruptcy Code explicitly allows for debtors to hire non-attorney BPPs to type their petition and schedules. 11 U.S.C. § 110. There are some very specific limitations and disclosure requirements for BPPs. 11 U.S.C. § 110(b)-(h).

For example, BPPs “may not offer a potential debtor legal advice” 11 U.S.C. § 110(e)(2), they may not use the word “legal” or similar terms in their advertisements, 11 U.S.C. § 110(f), and they are required to fill out Official Form 119 every time they help prepare documents that are filed in a case. 11 U.S.C. § 110(b)(2). Some bankruptcy courts have imposed even stricter regulations for BPPs. For example, in the Eastern District of Michigan, a BPP may charge no more than $100 for their services. Bankr. E.D. Mich. Admin. Order 10-21.

If a BPP does not comply with all the requirements of Section 110 of the Bankruptcy Code, he or she may face some very steep penalties. A debtor, trustee, or U.S. Trustee may file a motion against the BPP pursuant to Sections 110(i) or 110(l) of the Bankruptcy Code. The penalties awarded under this statute may include a refund of the fee the debtor paid to the BPP and the greater of $2,000 or twice the amount of the BPP’s fee. 11 U.S.C. § 110(i). Additionally, a BPP may be required to pay up to $1500 in fines to the U.S. Trustee for each violation of Section 110 of the Bankruptcy Code if certain conditions are met. 11 U.S.C. § 110(l). The court may also enjoin (or forbid) the offending BPP from providing their services to other debtors. 11 U.S.C. § 110(j). Some BPPs have even ended up in jail for providing “services” in violation of Section 110 (see links here, here and here).

While it is good that debtors who have been ripped off by unscrupulous or incompetent BPPs have some recourse, the relief offered by Section 110 of the Bankruptcy Code does nothing to help these debtors get any closer to receiving a discharge of their debts.

Overall, if you are considering filing for bankruptcy, please consider hiring an experienced bankruptcy attorney who be able to competently represent you. If you cannot afford an attorney, contact the clerk’s office at your local court to see if they can refer you to a legal aid clinic. In the Chicago area, the Bankruptcy Assistance Desk or a legal aid organization such as Chicago Volunteer Legal Services may be able to help you.

If you have been a victim of a BPP, reach out to your local U.S. Trustee’s office for assistance. By cooperating with the U.S. Trustee, you may be able to recover your losses and you might be able to help prevent that BPP from harming another person like you.