Do I need an attorney to file bankruptcy?
The short answer is ... absolutely, yes. And I'm not saying that just because I want you to become a client.
The vast majority of people who file bankruptcy hire an attorney to represent them, and for good reason. Bankruptcy is not just a matter of filling out some forms. It is a very technical process which affects important and substantial legal rights. If you do not know what you are doing, you could suffer very severe consequences, from losing property, to having your discharge denied so your debts can never go away, and even criminal prosecution.
I would estimate that less than 1% of people who file bankruptcy attempt to do so without an attorney. I see these people from time to time in court. I can honestly say that out of the last three that I saw, every single one of them had made large and glaring mistakes in the handling of their own case. Their cases were not even heard by the trustee, or they were continued, meaning that they had to make a second court appearance to correct deficiencies in either the bankruptcy petition itself or in the required documentation. Who knows whether these people I saw were able to fix their cases and obtain a discharge.
Here are just a few examples of the things that can happen to you when you attempt to file a bankruptcy case yourself:
- First and foremost, I do not want to scare people. The vast majority of people who file bankruptcy with a qualified attorney do not have to give up any property whatsoever. Why? Because the attorney is there to help you a) place the proper dollar value on your property, and b) he or she is there to claim your proper exemptions.
Occasionally, it may be necessary to give up some item of property or make arrangements to pay some amount back to your creditors, depending on what assets you have. As one bankruptcy trustee says, this is the price you pay for obtaining the elimination, or discharge, of a tremendous amount of debt. This is the price of your "fresh start."
I would estimate, however, that 10% or less of bankruptcy cases with an attorney end up having to turn over any property at all, and when they do, it's usually something quite small in the grand scheme of things, quite frankly, a great bargain considering all the debt you are getting rid of. With a good attorney and proper planning, people either will not lose property, or, they will at least know in advance that a certain piece of property, for example stock shares, or a portion of their tax refund, is simply going to have to be turned over. It's almost always a tiny fraction of the amount of debt they are wiping away. Any good attorney, including me, will spot these sorts of assets and issues, and in many cases you can actually plan and time your bankruptcy so you get to keep the money, keep the tax refund, etc. But if you try to file your case yourself, it's simply not going to work.
In order to keep, or protect, items of property in a bankruptcy, whether it be your house, car, bank account, tax refund, or other property, you have to know how to claim the proper exemptions under Missouri law andfederal law. There are over two dozen sections of Missouri law devoted to the various exemptions you can claim, and none of them are easy to find or understand. There are over a dozen more sections of the bankruptcy code pertaining to exemptions, and even more non-bankruptcy exemptions in federal law, such as the exemptions for social security funds.
People who are not attorneys have absolutely no clue how to do this, and quite frankly I don't blame them. If you do not properly place a value on your property, or if you do not properly claim your exemptions, there is a good chance you could lose significant items of property in your bankruptcy. This is why it is so important to hire a competent attorney who practices bankruptcy regularly and as a large portion of his or her practice.
- There are a large number of very technical and quite frankly bizarre rules in the bankruptcy code. If you aren't aware of these rules, which take many years of practice to properly understand, then you could end up facing a variety of unpleasant situations: a) you could lose property b) you could cause your relative to be sued (crazy but true!) c) you could have certain debts end up not being discharged, or worse, none of your debts would ever be discharged! Many of these provisions of the bankruptcy code simply do not apply to the cases ofmost people. They are like sharks lurking in the water. Most people are not going to get bitten. However, you would be surprised at who does have a shark with their name on it. With a competent attorney, you can see the sharks coming, and take simple steps to avoid them.
- It is extremely important that your situation be reviewed by a competent attorney so you can make SURE that none of these provisions/sharks apply to you. For example, the bankruptcy court can undo mortgages which you incurred within 90 days of filing, causing you to lose your home or other real property! If you pay back a friend or family member within one year, the court could sue that person to get the money back, and even garnish their wages to collect! If you transfer anything fraudulently to hide things from creditors, you could end up with your bankruptcy case being denied, or even criminal prosecution! Some people are not even aware that what they have done is considered fraud by the bankruptcy code, because quite frankly, what the bankruptcy code considers fraud may not be what you and I consider fraudulent conduct or blameworthy conduct. But you are going to have your discharge potentially denied nevertheless. These are the kinds of issues which make hiring a good attorney so important.
Another issue: You could have a lien on your house resulting from a lawsuit that was filed against you, and not even know it! This lien will cause your house to be unsellable, or worse, result in your house being foreclosed! With a competent attorney, all of these issues can be spotted for you, and either avoided before they even happen, or if they do pop up, the attorney can in most cases solve them for you. For example, an attorney can, depending on the value of your home, get rid of, or strip, any liens resulting from lawsuits. People filing bankruptcy by themselves are just about certain to be unable to even fill out even basic elements of the forms correctly, much less spot and correct these highly technical issues.
Another issue: Some people may not qualify for bankruptcy because they make too much money. If you try to file such a bankruptcy case by yourself, I can pretty much guarantee your case will be dismissed, and you will have waste a lot of time and well as the $306 filing fee which must be paid to the court. Why is this? Because in 2005, congress passed into law what's called the means test. The means test is basically a form you have to fill out which is about 600% more complicated than filling out your income tax return. And this form is only one element of your bankruptcy petition, which consists of, on average, 50-100 pages. Attorneys who do not practice bankruptcy know absolutely nothing about how to properly handle the means test, or almost anything else concerning a bankruptcy case, quite frankly. Attorneys who specialize in bankruptcy attend entire conferences dedicated solely to keeping up on changes to the means test form, and keeping up to date on case law affecting the form. Trust me, you really don't want to try and handle this form, or the other bankruptcy forms, yourself. To a good attorney, the form is a relatively routine process. To anyone else, the form is Greek.
The short answer is, you really cannot afford not to hire a good bankruptcy attorney. Most of us, myself especially, work for very little compared to other attorneys. The small amount of money you spend to make sure your case is handled properly, and your rights protected to the maximum extent possible, is well worth it.