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The $500 Bankruptcy Petition Preparation that Cost more than Ten Grand

Another sad story about non-lawyer bankruptcy petition preparation.

In August 2012, a woman filed a chapter 7 case assisted by a bankruptcy petition preparer ("BPP") who advertises paralegal services. The woman wanted to stop a foreclosure on her home. Filing bankruptcy can delay foreclosure at least a month, but a chapter 7 provides only temporary relief.

Even though BPPs are prohibited by law from giving legal advice, bankruptcy petition preparers at least should know when to say, "I can't help you. Get a lawyer." An attorney could have told this woman about another kind of bankruptcy, chapter 13, which can stop a foreclosure, let a homeowner get caught up on payments, and get rid of worthless second or third mortgages.

Recently, the woman attended the meeting of creditors in her case. The meeting of creditors is conducted by a bankruptcy trustee. The trustee's job is to find unprotected assets or property that can be used to pay a debtor's creditors. In this case, the trustee is going after the following:
  • $8,000 cash in the woman's bank account,
  • Her car, which is worth more than she can protect in bankruptcy, and
  • Two thirds of the 2012 tax refunds to be received in 2013.

If the woman had hired an experienced bankruptcy attorney instead of a BPP, she may have been able to deal with her foreclosure problem and avoid losing what is at risk in this case. In a chapter 13 bankruptcy, for example, a repayment plan can save a house, protect other assets (like a car worth more than the vehicle exemption), discharge unsecured debt, and pay a court-approved attorney fee.

Instead, this unfortunate woman paid a BPP "only" $500, but she will lose a lot more. Like too many non-lawyer document preparers, this BPP charged more than the $200 fee that a bankruptcy judge allows BPPs to be paid without court approval.

If there is any good news, it is that the woman's bankruptcy trustee is referring the BPP to the local U.S. Trustee's office -- apparently because the BPP charged too much, violated bankruptcy law, and engaged in fraudulent, unfair or deceptive acts. This BPP has been in trouble before, which is probably why he did not disclose his assistance or his fee on the court forms as required by law.

Update: On October 23, 2012, the U.S. Bankruptcy Court in Colorado banned Assaf or anyone associated with him from preparing bankruptcy documents. Honest debtors, beware, this guy and his associates are still out there -- illegally trying to profit from your misfortune.

If she's lucky, the woman may be awarded $2,000 because the BPP overcharged her. But that hardly makes up for what she's about to lose. Instead, it makes retaining a good attorney look like a real bargain.

Contact the local U.S. Trustee's office if a bankruptcy petition preparer charges too much, violates bankruptcy law, or commits any fraudulent, unfair, or deceptive act. There are also a couple of good bankruptcy attorneys who are helping unwitting victims of BPP violations.