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U.S. courts: complaints increasing over non-attorney bankruptcy preparers

A recent report issued by the Administrative Office of the U.S. Courts cautions that the number of complaints against non-lawyers in bankruptcy case filings has increased in recent years. Bankruptcy judges reportedly have seen an increase in abuses of federal law by non-attorney "bankruptcy petition preparers." A bankruptcy judge chambered on the West Coast says that, "The increase in 'foreclosure rescue' and 'loan modification' services seems to be the source in the past three years."

The judge says that she has seen bankruptcy petitioners "who have paid thousands of dollars for assistance that was useless or non-existent." Typically, a bankruptcy petitioner seeks assistance in filing for bankruptcy from a licensed attorney, who can provide legal advice.

However, some filers wish to proceed without counsel in filing a "pro se" bankruptcy petition. The requirements of what needs to be contained in a complete bankruptcy petition are the same.

Some people who choose to file their own petition seek assistance from what are called bankruptcy petition preparers. A provision in the bankruptcy laws allows BPPs to prepare documents for filing, but the non-attorneys have limited authority to perform duties, and the U.S. courts released a statement Monday indicate that complaints are on the rise concerning BPPs. The U.S. Courts' announcement says that some BPPS are not operating within the limits imposed under the bankruptcy code.

A recent report determined that people who file pro se petitions receive discharges of debt in bankruptcy at a lower rate than those who seek a licensed attorney for assistance in navigating through the bankruptcy. That report found that of all pro se filers, those who did not personally file the petition at the bankruptcy court had the bankruptcy case dismissed at twice the rate of pro se petitioners who worked on the case themselves.

The Administrative Office of the U.S. Courts statement issued this week says that the finding that pro se bankruptcy petitions involving BPPs suggests that inadequate assistance from BPPs may be the reason that so many pro se petitions are being dismissed.

The U.S. Trustee Program, which is a part of the Department of Justice and serves to oversee the administration of bankruptcy cases, says that, "Non-attorney bankruptcy petition preparers may type bankruptcy documents with information supplied by the debtor. They may not provide legal services, such as helping you choose whether to file under Chapter 7 or Chapter 13 or identifying your property that is exempt from the reach of creditors."

The bankruptcy laws, and rules of the bankruptcy court for Ohio residents, can certainly be complex. Many people looking to file bankruptcy may have heard of such issues as the "means test." Generally, the means test is designed to keep bankruptcy petitioners whose household income exceeds the median income for the state from filing for chapter 7 bankruptcy. But the formula can be complex.

Similarly, understanding how bankruptcy exemptions work, and where assets fall within the exemption scheme can be a complex process, especially for those unfamiliar with the bankruptcy code and rules.

Source: Administrative Office of the U.S. Courts, "Increased Use of Bankruptcy Petition Preparers Raises Concerns," June 18, 2012

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