Filing Bankruptcy Without a Lawyer Can Cost You

Categories: Bankruptcy

Yes, you can file bankruptcy without a lawyer, but there’s a price to pay for everything. Here in the Central District of California, approximately 25% of all bankruptcy cases are filed Pro Se (without an attorney). Our bankruptcy court has online resources to help those without a lawyer to help with this issue.  I am a big fan of the “do-it-yourself” group when there’s nothing to lose and no money to hire an attorney.  You see, if you have no assets, that is, nothing of value that the trustee might take to pay your creditors in a bankruptcy under chapter 7 of the Bankruptcy Code, then it’s at least worth a try. However, like a new client of mine just found out the other day, a chapter 7 bankruptcy is fraught with pitfalls and landmines.  Let me explain.

This debtor had filed a chapter 7 bankruptcy case to stop the foreclosure sale of his home and he filed after his due diligence internet research on how to do it.  What he didn’t know was that he had just jumped into the arms of the chapter 7 trustee whose job it is to look for assets to take to pay creditors and boy did he have assets.  First, he’s a business owner, which complicates bankruptcy cases due to the additional reporting requirements to show your books and records, and the fact that a debtor is not allowed to continue to operate their business in a chapter 7 case.

Next, this debtor had significant equity, beyond any exemption amount that can be claimed and kept from the trustee. This is important because soon after this debtor met with the trustee, he learned that the trustee intended to take and sell his home for the benefit of his creditors. From there, he sought to dismiss his case, but his motion to dismiss was denied on the grounds that he failed to follow the proper procedures.

After that loss, the trustee began her fast approach toward getting the proper court orders that would allow her to take control of the debtor’s assets, hire a realtor to sell the home and take control of his business operations and the debtor was not happy.  His next best effort was to attempt a conversion to a chapter 13 bankruptcy case. He managed to file his motion, only to be met with an opposition by the chapter 7 trustee and the court set a hearing for this motion to be heard and argued before the judge.

It was at this point the debtor sought our help.  In preparing for the hearing, the record reflected the debtor’s lack of cooperation with the trustee and the debtor’s realtor outright refused to delist the property the debtor had up for sale. It didn’t look good for this debtor to be released from the death grip of the chapter 7 trustee.

At the hearing, the judge noted that the debtor did one thing right, and that was to bring an attorney with him to the hearing.  The lesson in all this is that you can go it alone, thinking you’re saving money, but in the end, you could pay more.

The outcome is that the debtor got what he wanted, which was to convert his case to that of a chapter 13 payment plan case, which is where I would have advised the debtor to go in the first place.  The price he pays is that the chapter 7 trustee will be permitted to file a claim to get paid their fees thus far. The judge ordered that he cannot dismiss his case so that his creditors are protected; and, if he fails in chapter 13, he must convert back to chapter 7. Add to that attorney’s fees and chapter 13 trustee fees and you’ve got yourself some added costs to get the job done. This client could have saved the headache he experienced by seeking the advice of a local bankruptcy attorney with experience and a positive reputation in their community.