With the number of those filing bankruptcy shooting through the roof, there has been an insurgence of bankruptcy petition preparers. Since 2008, the numbers of those filing for bankruptcy has continued to rise with the exception of 2011 being a flat year.
Understandably, while it's sad, it's been a boom time for those in the bankruptcy filing industry. Included in this boom is the move away from hiring a bankruptcy attorney and trying to use a bankruptcy petition preparer to save a few bucks. It's very tempting and understandable, when you're having financial distress to try and cut a few corners. There are many qualified petition preparers out there, but the problem is if they are not working under the guise of a bankruptcy attorney there are a lot of areas that legally they are not allowed to help the debtor with. Many preparers are actually paralegals for a bankruptcy attorney. When it comes down to it, most of them know very well how to prepare a bankruptcy petition.
The problem starts at the beginning of gathering the information from the debtor to file for bankruptcy. First of all, the preparer cannot give any legal advice at all. Technically, they can't even advise the debtor on whether to file Chapter 7 or Chapter 13 bankruptcy. To qualify for Chapter 7 bankruptcy the debtor will need to pass a means test. Legally, the preparer will not be able to give any advise to the debtor if they qualify to file for bankruptcy under Chapter 7. Many times, if the debtor could put off filing for bankruptcy for a few months they might qualify to file Chapter 7 bankruptcy, instead of being pushed into Chapter 13. This is a reason for spending a few extra dollars to hire a bankruptcy attorney. The bankruptcy attorney will be able to look at the entire picture and advise their client on the perfect timing of the bankruptcy filing where a bankruptcy petition preparer doesn't have that luxury.
With the huge increase in bankruptcy filings, many paralegals have been moonlighting from their day jobs as document preparers. Many of the bankruptcy trustees have gotten frustrated with the situation and have started to investigate and prosecute those who are breaking the rules. Some of these individuals advertise low rates and in many cases overstep their bounds by giving their clients advice. In reality, a paralegal that is not working under a bankruptcy attorney is not allowed to even advise the debtors on what bankruptcy exemptions to use, whether it's state, federal and even explain what exemptions would be best for their situation. Another area that the bankruptcy trustee is having trouble with is the amount that a preparer can charge. The bankruptcy code states that a bankruptcy petition preparer can only fill out the documents, while charging a reasonable fee.
The debtor is required to provide all the information. Different states consider different amounts as a reasonable fee for document preparation. The average amount that is considered reasonable is approximately $150. Because the cost of a bankruptcy attorney is generally over $1000 for Chapter 7 bankruptcy, document preparers have been trying to push the limits as high as $350 for a bankruptcy preparation. The ones that are doing this are coming under the scrutiny of the bankruptcy trustee and expected to prove the reason for the extra cost. When the debtor filing for bankruptcy, attends the 341 meeting, the trustee will ask questions about the preparer and whether or not they received any kind of legal advice. Any discrepancies will bring an investigation by the bankruptcy trustee. The last thing a debtor needs during this time in their life is to have a problem while their filing bankruptcy to put their debt in the past.
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