Do It Yourself Bankruptcy
Do it yourself bankruptcy can be tempting, especially where funds are limited. After all, the whole reason to file a do it yourself bankruptcy is that you are broke! I mean like, how hard can this be? After all, there are paralegals who will give you legal advice about all the important issues and will fill out the forms for $150. For that matter do it yourself bankruptcy cannot be that hard, right? Wrong! Do it yourself bankruptcy can be a lot like do it yourself brain surgery. The result is not pretty and can often be fatal.
Do It Yourself Bankruptcy and Paralegals
Of course that is why you are going to have that paralegal help you with your do it yourself bankruptcy, because they have all this legal knowledge. Unfortunately there is a reason they are limited to a small charge for filling out your papers. It is because they cannot give you legal advice. That is because of terrible results people have had as a result of paralegals who did not know what they were talking about.
I have testified in a legal malpractice case against a paralegal that filed a bankruptcy 10 days too soon to wipe out nearly $20,000 in tax debts. The taxes were the only debt and the only reason the person filed bankruptcy. I remember the Judge telling the paralegal that “when you give bad legal advice acting like the big boys (lawyers), you can pay for your malpractice just like the big boys” Unfortunately, she just left the state and her “client” did not get one cent of the $20,000 the paralegal cost him or what he paid her for that matter. Of course he did save $1,000 to $1,500 in attorney’s fees!
Do It Yourself Bankruptcy Complications and Pitfalls
Well your case is simple right? So why not a do it yourself bankruptcy? The problem is that what looks simple to you may be because you don’t know enough to spot problems that would be uncovered by a good bankruptcy attorney.
When you attempt a do it yourself bankruptcy, you are truly your own attorney. If you get it wrong, there are no “do-overs.” The court holds you to the same standard as a bankruptcy attorney. If it is screwed up, tough luck. On top of that, you can’t sue yourself for malpractice like you could had a bankruptcy attorney messed it up.
Well you think, if you just use common sense in a do it yourself bankruptcy you are going to be OK. Unfortunately the bankruptcy laws have nothing to do with common sense. I regularly tell my clients that Alice in Wonderland has more to do with common sense than the bankruptcy laws. If it makes sense, it is wrong in bankruptcy law.
I cannot begin to count the number of times people thought this was about filling out papers. It isn’t, any more than playing chess is about moving chess pieces around the board. It is about strategy and knowing how to protect assets.
It is about knowing what things that a bankruptcy trustee can take away from you to pay your creditors. That includes things you won’t even think of like tax refunds that you won’t get until next year or the right to sue someone. It is about knowing when to file bankruptcy and when not to. It is about legally doing pre-bankruptcy asset and exemption planning so that the bankruptcy trustee cannot take things from you. It is about why you actually hurt yourself and people like family or friends if you pay them back before you file bankruptcy. It is about why you are throwing money away by paying off some credit cards because you think you are going to keep the cards.
Do you know what exemption system you can use to protect the things you want to keep? In a do it yourself bankruptcy you better know. You may think that if you live in California you use California exemptions. Maybe, maybe not. Depends on where you lived the last 2½ years.
If you do qualify to use California exemptions in your do it yourself bankruptcy, then you need to know which system will be best for you to use because you can only choose one. It is about knowing that there actually are some “Federal Exemptions” that you can use even when the “normal” Federal bankruptcy exemptions cannot be used.
You need to know what the “means test” is and how it works. I have seen many clients who have gone to several other attorneys and paralegals who told them they would have to spend 5 years paying creditors in a Chapter 13 reorganization because they did not qualify to wipe out their debts in a Chapter 7 bankruptcy. Most often, with some planning I have been able to legally change their situation so they could do a Chapter 7 bankruptcy.
I regularly see people coming in to see me with major problems caused by not knowing how the bankruptcy laws are going to be interpreted.
Can you afford a competent bankruptcy attorney is not the question to ask. The real question is, can you afford to NOT have a competent bankruptcy attorney.
I had a case where the people filed their own do it yourself bankruptcy with the help of a paralegal. They thought that their home, vehicles and cash in the bank was going to be protected. Instead, the house turned out to be worth much more than they thought. This was a problem that could have been identified before the case was filed if they had used a good bankruptcy attorney. When the bankruptcy trustee told them that he was going to sell their home to pay creditors they came to me. Fortunately, I was able to protect their home. Unfortunately, they are going to lose thousands of dollars because the vehicles were worth more than the $2,900 total vehicle exemption.
On top of that, the money in their bank accounts and the tax refund for 2015 are going to have to be turned over to the bankruptcy trustee to pay creditors. With some planning before the bankruptcy was filed, these problems could have been legally fixed. They saved a couple of thousand dollars by not using an attorney. Because of that they are going to lose $10,000 to $15,000 depending on what I can negotiate with the Bankruptcy Trustee. Ironically, they are going to pay me more than twice what they would have had they hired me to do the job right in the first place. Their do it yourself bankruptcy was no bargain.