Is an Attorney Necessary to file for Bankruptcy?
Sometimes people wonder whether an attorney is really necessary to file for bankruptcy. Understandably, if you are considering bankruptcy, you are under financial stress, so you might be tempted to save money by not hiring an attorney. At the risk of sounding self-serving, this is truly a bad idea. It reminds me of a recent television commercial in which someone attempts to perform surgery on themself - also a very bad idea.
Certainly, the bankruptcy forms themselves look relatively straight forward. However, that is really deceiving. There is a lot to know in order to properly file for bankruptcy, and protect your rights, that is not self-evident by merely reading the forms, and that is also likely not explained by any instructions you may find to assist you with the forms. Further, simply correctly answering the questions in the bankruptcy forms does not ensure that you are properly protecting your rights, or even that you qualify for bankruptcy. These are things that only an experienced bankruptcy attorney will likely know. It is very important that your case be filed and handled competently, as this is not a game. The rules are very technical, and if you file without an attorney, no one is going to explain these rules to you, or even tell you they exist. Your bankruptcy judge, trustee, and the employees at the Court will not give you legal advice, and they will not do more than answer some very basic questions.
Just consider the following few examples of things that can go very, very wrong without an attorney (of which there are many more too numerous to mention):
(1) Exemptions & the Potential to Lose Assets:
If you file for a Chapter 7, that is a type of bankruptcy known as a "liquidation". That means that your bankruptcy trustee (an attorney assigned by the Court to administer your case) can take from you, and sell, specific asset(s) that you own, if that specific asset(s) has a value larger then that which you are allowed to "exempt". Therefore, if an asset is considered "exempt", you get to keep it, and the trustee cannot take it from you. However, if an asset is considered "non-exempt", the trustee can take it from you, sell it, and then distribute the proceeds of the sale to your creditors. The exemption rules determine which assets are "exempt", and which are "non-exempt", grouped by categories of assets.
If you file without an attorney, it is your responsibility to affirmatively take your own exemptions. Therefore, it is vitally important that you hire an attorney who knows the exemption rules, and knows how to take maximum advantage of these rules to exempt as many of your assets as the law allows. The exemption rules are very complicated, often change, and vary from state to state. An experienced bankruptcy attorney will also know how to rearrange your assets, prior to filing, to maximize your exemptions - this is known as "exemption planning", and is similar in concept to tax planning.
At The Law Office of Henry Ahrens, we are extremely experienced attorneys in these matters. We will also tell you, prior to filing a Chapter 7, if you simply have too many non-exempt assets, and therefore should not file a Chapter 7 - though that is rare, as we usually can arrange to exempt all or most of your assets.
If you file for a Chapter 7 without an attorney and without knowing the exemption rules, you are asking for trouble. As above, your bankruptcy trustee can take your assets from you, if they are not properly exempted. That could include your car, bank accounts, tax refund, and even your home. Even worse, if your bankruptcy trustee attempts to take certain of your assets, you cannot simply say "I didn't realize that would happen, I want to withdraw my bankruptcy case and keep my assets". Your Bankruptcy Judge will probably not agree, as it would be considered harmful to your creditors. At that point, it is too late, and you will likely lose the asset(s).
(2) Actions Taken by You Prior to Filing for Bankruptcy:
OK, I know what you are thinking - what business is it of the Court what I did prior to filing for bankruptcy? The bankruptcy laws were mostly written to protect you from your creditors - however portions of it were also written to protect your creditors from you. In other words, certain actions taken by you before you file can be considered prejudicial to your creditors, or even fraudulent. You should know that bankruptcy fraud is a crime. A bankruptcy attorney can help you avoid these potential problems. You should also know that an attorney can usually help you legally structure your assets and skillfully utilize your exemptions to legitimately protect your assets. Examples of potential problems -
(a) Fraudulent Conveyance: A "fraudulent conveyance" is a situation where you sold an asset that you own to someone else, for substantially less than what that asset was worth, at the time of sale, within either 4 years (perhaps as long as 7 years, in some cases) prior to your bankruptcy filing. For example, you owned a car worth $20,000, and sold it to your Uncle Louie for nothing/almost nothing within 7 years prior to filing. That would be considered a "fraudulent conveyance", as the thinking is that you were trying to avoid that asset from being taken from you in your bankruptcy. The bankruptcy trustee can then sue Uncle Louie to get back the car for your bankruptcy estate, and the Court also may not eliminate your debts, if the transaction was bad enough. An attorney, such as those at The Law Office of Henry Ahrens, can avoid this situation by: (a) identifying any such transactions prior to filing; (b) have you reverse the transaction prior to filing; or (c) have you wait past the applicable look-back time period before filing; or (d) suggest another solution.
(b) Repaying Friends/Relatives: If you repay money you owe to friends or relatives prior to filing for bankruptcy, you may think, what's wrong with that? The problem is that repayments of debt to "insiders" within one year prior to filing are considered "preferential payments", and can be recovered from the person you paid by your bankruptcy trustee. An "insider" is a friend, relative, business associate, or an entity that you own, or otherwise control. The thought is that this is a form of hiding your assets, and should not be allowed. For example, you owed Mom $20,000, so you tranferred $20,000 before filing to her, and since she is your Mom, she will transfer that money right back to you after your bankruptcy is completed. It does not matter whether you were deliberately trying to hide the money, or were legitimately repaying the debt. Either way, the money can be recovered by the trustee. Again, an attorney can help you identify such transactions, and structure your filing to avoid this problem, either by reversing the transaction, or waiting to file until it is more than one year since repayment.
(c) Spending Sprees on the Eve of Filing: Also not a wise move, and the Bankruptcy laws frown upon this. If your thinking, let's have a big party, and use up the rest of our credit limits prior to filing, please think again, as this may cause those debts you run up on the eve of filing to not be eliminated, and perhaps cause all your debts to not be eliminated. The lawyers at The Law Office of Henry Ahrens know the rules in this area, and how to prevent them from applying in your case. For example, luxury purchases and cash advances taken by you beyond a certain dollar amount in the 90 days prior to filing can lead to the burden being placed on you to prove that the transaction was not fraudulent. We know how to prevent that rule from applying to you.
(3) Not Listing all your Assets and/or Debts:
If you file for bankruptcy, you are required to list all your assets, and also all your debts. Many people mistakenly think they can only list those which they so choose. You certainly want to list all your debts - because any debts you do not list may not be eliminated in your bankruptcy. Also, if you do not disclose all assets that you own, this can be viewed as bankruptcy fraud, which is a crime, and could also lead to your debts not being eliminated. What assets you own may not always be obvious. For example, if you are on title to your parents' house, or have a joint bank account with Mom, you may not think of that as your asset, but under the bankruptcy laws, it may well be. An attorney will help you identify all your debts and assets, to avoid any problems.
(4) Prior Filings & the Automatic Stay:
The "automatic stay" operates to prevent your creditors from trying to collect from you, and normally goes into effect immediately, once the case is filed. However, the automatic stay is not always so automatic. If you have had prior bankruptcy cases dismissed, within a certain amount of time prior to the current filing, there are restrictions on the automatic stay applying in the new case. That means your creditors can continue to try to collect from you, if the automatic stay is not in effect. The attorneys at The Law Office of Henry Ahrens know these rules, and how to get the automatic stay to go into effect in your new case.
(5) Qualifying for Bankruptcy:
To achieve the results you want in a bankruptcy you must, as a threshold issue, qualify for the particular type of bankruptcy that you file for. To qualify for a Chapter 7 bankruptcy, you need to not have the ability to repay your creditors, which basically means that you have a negative monthly cash flow (your household net income is less than your household living expenses). If you have a positive cash flow, your Chapter 7 filing will be deemed "abusive", and the U.S. Trustee's office may file a motion to have your case dismissed. To qualify for a Chapter 13 bankruptcy, which is a repayment plan, you need to show that you have enough of a positive cash flow to make the monthly plan payments. If you do not, then your plan will be deemed to not be "feasible", and will not be approved, or "confirmed", by the Court. The attorneys at The Law Office of Henry Ahrens know how to navigate through these rules, so that your filing will be approved. If you file without an attorney, no one will explain these rules to you, or even tell you that they exist, so you will be left on your own to figure it out.
I hope the above makes you think twice about filing for bankruptcy without an attorney, but does not discourage you from filing at all. Although there are many issues that need to be addressed in filing for bankruptcy, a skillful attorney should be able to do so for you, while managing to protect your rights, and hopefully achieving your desired results.