Do I Need a Lawyer?
There is no requirement to use a lawyer to file for bankruptcy. However, some people decide to hire one to help them get through the process.
Whether you're a good candidate for doing it yourself, depends on the complexity of your financial situation, and your willingness to take the time to learn the rules of bankruptcy. (If you're not the type of person that is willing to follow instructions carefully, then self-help is probably not for you.)
Your Financial Situation
If your debts consist only of unsecured credit card debt, you may well be able to file for bankruptcy on your own.
However, other factors to consider are the amount and type of property you own. If you own your home, have substantial retirement savings, or other substantial assets you may want to consult with a lawyer to make sure your property is not at risk.
A good way to approach the decision of whether to hire a lawyer is to buy (and read) Nolo's book How to File for Chapter 7 Bankruptcy. It will give you a good idea of what issues may arise when you file, and flags specific situations when a lawyer's help is called for. It will also give you a good idea of whether the filing process seems to complicated for you.
If your financial situation is simple, but you just don't want to deal with the forms, you might consider a using a Bankruptcy Petition Preparer to handle the form preparation.
Some lawyers may be willing to review your situation without taking on your entire case. If they see that your situation is very simple, some lawyers might even tell you that you can do it yourself.
Other Resources, Other Opinions
Lots of people have opinions on the topic of whether you should get a lawyer. Most lawyers... guess what... think you should always have a lawyer. But, seriously, they make some worthwhile points that are worth reading as you decide what to do.
The National Association of Consumer Bankruptcy Attorneys (NACBA) makes the case of why you should use an attorney and offers tips for those who cannot afford one.
The law firm of Moran Law Group, in addition to providing loads of useful free information about bankruptcy, also makes the case why you should get a lawyer and the US Courts site has this advice about filing without an attorney.
And Nolo has an article on Filing for Bankruptcy Without an Attorney
These are all worth reading.
What should I expect from a lawyer?
If you hire a lawyer, make sure your lawyer is an experienced bankruptcy lawyer. Bankruptcy is a complex, unique area of law that is not something that a general practitioner can learn overnight. Ask your lawyer how many bankruptcies they have filed.
Your lawyer will probably have you fill in a questionnaire about your property, debts, expenses and income. A good lawyer will be able to determine quickly what kinds of debts will be dischargeable in bankruptcy. The lawyer should advise you to get credit counseling before you file, and will may even have a computer terminal in their office where you can do the counseling right there, online. Many lawyers have preferred credit counselors that they work with.
Lawyers are responsible for making sure that your information is accurate, so they will be asking you to bring in documentation about your finances, including pay stubs, tax returns, etc.
For more information about working with a bankruptcy attorney, check out Chapter 10 of How to file for Chapter 7 Bankruptcy.
What is a “BPP” (Bankruptcy Petition Preparer)?
Bankruptcy Petition Preparers are non-lawyers paid by consumers to prepare bankruptcy documents, for filing in court.
Anyone can be a BPP, provided they comply with the rules governing BPP practice contained in the bankruptcy code.
Customers who use a BPP are representing themselves in the bankruptcy court. This means they are responsible for making the choices required of them in their case. They must also provide the BPP with complete and accurate information to be entered in the documents.
Because BPPs are not lawyers, their customers must obtain necessary legal information and advice from an independent source such as a self-help law book or a lawyer.
Rules for Bankruptcy Petition Preparer Practice
As a debt relief agency, you are liable to your customers if you are negligent in performing the services required by the bankruptcy law or other services you have agreed to provide.
Specific Bankruptcy Petition Preparer Requirements:
As a BPP you must:
• sign and print your name, address and social security number on documents you prepare (the official bankruptcy documents provide spaces for this information)
• provide your customers with an official notice explaining that you are not an attorney and can’t practice law or provide legal advice
• provide your customers with copies of the documents to be filed, and
• file an official document with the bankruptcy court disclosing your fees.
The new law specifically prohibits BPPs from:
1) providing customers with information or advice about bankruptcy, including:
• Whether to file bankruptcy
• What type of bankruptcy to file
• What debts will be cancelled
• What property can be retained
• Tax consequences of filing bankruptcy
• Whether tax claims can be cancelled
• About repayment options
• About the nature of the customer’s debts, and
• About bankruptcy procedures and rights.
2) using the word “legal” (or any similar term including “paralegal”) in advertising
3) advertising under any category that includes the word legal (or any similar term)
4) handling customers’ bankruptcy court filing fees
5) charging a fee higher than the maximum allowed by the court in which the documents will be filed.
6) advising a customer to exclude assets or income that must be included on applicable forms
7) advising a customer to use a false Social Security account number
8) failing to inform a customer that he or she is filing for bankruptcy relief, or
9) preparing a document for filing in a manner that fails to disclose your identity
With the training and materials offered by the Bankrutpcy Law Project, there should be no reason to violate any of these rules. But if there are violations, stiff fines may result, and repeated violations or fraudulent acts may result in a loss of your right to engage in BPP practice.
What is Credit Counseling?
Credit counseling is now required for all persons filing for bankruptcy. It costs about $50 and can be done in person, on the phone, or over the internet.
A credit counseling session generally lasts about 90 minutes. They'll review of your financial situation, give you information about your rights and options, and propose a repayment plan for resolving your debt problems, if possible.
Credit counseling organizations are now screened by the federal government and only approved organizations can be used in bankruptcy. (Click here for the list of approved credit counseling agencies.) This regulation is a good thing. The field rife with rip-off artists and the regulation has been welcomed by legitimate credit counselors.
The FTC also publishes a useful pamphlet on how to select a credit counselor.
What is “debt consolidation”
Debt consolidation is the practice of taking out one large loan to pay off a bunch of smaller debts that are charging higher interest.
Debt consolidation may or may not be a good idea, depending on your situation. Lower interest is a good thing, but turning unsecured debts (like credit card bills) into secured debts (like a home equity loan) can be a costly mistake if you eventually file bankruptcy anyway. Unsecured debts can often be eliminated in bankruptcy, while most secured debts cannot. If you can't pay your secured debt -- or if the payments are late -- you may lose your home.
Also, the fees for setting up such loans can be expensive.