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The Perils of Pro Se Bankruptcy and "Free" Consultations.

June 1, 2006

Prior to the passage of the Bankruptcy Reform Act of 2005, filing a bankruptcy pro se (without a lawyer) was relatively simple. Not any more! The disclosures required for a Chapter 7 bankruptcy petition have at least tripled. This fact is not lost on corporations that produce and sell do–it-yourself legal packets. The not-so-innovative tactic used by these companies is to send customers to attorneys who offer a “free consultation,” before they complete the bankruptcy filing on their own. Sadly, this can lead to disastrous outcomes.

Under the new law, if you fail to undergo credit counseling, submit six months of pay stubs, and account for all additional income over the last six months (including income from gifts, retirement disbursals, stock sales, etc.), your case will be dismissed or converted to another bankruptcy chapter. If this happens, you may lose the ability to receive a Chapter 7 discharge for six months. A new case must be filed and entirely new paperwork submitted. An attorney providing a “free consultation” is not required to give out this information to you. Until you retain an attorney, no attorney-client relationship and no protection for you or your petition exists. Furthermore, while this  “free consultation” attorney is required to thoroughly evaluate a particular situation thoroughly on your do–it-yourself legal filing, he may miss many other pertinent or important details. These are the very details the new law forces judges to consider when dismissing a case. Your case. Free advice can be the most expensive advice you ever receive.

You can avoid most of the pitfalls created by the new law by hiring a competent attorney to prepare your bankruptcy petition. The money spent on a professional who is in your corner is miniscule compared to the financial and emotional hardship of having a bankruptcy “dismissed” or “converted.” That said, paying legal bills is typically very difficult for individuals and families already strapped for cash. This is still not the place to save what money you have.

The best strategy is to cut back on other expenses or get help from a friend or family member. The money you borrow can be repaid after the bankruptcy (under no condition can it be repaid before the case is filed).  Once bankruptcy is a real option for you, your payments to creditors should stop. This typically frees up some money with which legal representation can be purchased.

The bottom line: recognize that a bankruptcy is a very real solution to your financial problems. Make the decision sooner, rather than later, and take charge. If you time your filing properly, you can avoid many of the dangers of the new law. Most attorneys will take payments over time, allowing you to refer your creditors to them while your case is being prepared. This keeps the creditors away and allows you to focus on the issues you can control.