A cheap bankruptcy that works is a bargain, and plenty of them work. The problem is that the cases where cheap goes wrong go wrong in ways you cannot undo, and you usually find out months after the money is spent.
I am not going to name firms or pretend every low cost filing is a disaster. I am going to describe the specific failures I see when people come to me after a case has already gone bad.
Petition preparers cannot legally advise you, and that is the whole issue
A bankruptcy petition preparer is regulated by 11 U.S.C. section 110. They may type what you tell them onto the forms. That is it. They may not tell you which chapter to file, may not tell you which exemption system to use, may not explain whether an asset is protected, and may not advise you on whether to reaffirm a car loan. Doing any of that is the unauthorized practice of law.
So the most consequential decisions in your case, the ones that determine whether you keep your savings and your car, get made by you, alone, using the internet. The typing was never the hard part.
The failures I actually see
The wrong exemption system
A renter filed under System 1 because a form defaulted to it, and lost $16,000 that sat in a credit union account. System 2's wildcard would have covered every dollar. There was no fixing it after the trustee had demanded turnover, because by then the money was already the estate's.
Exemptions left on the table
Schedule C is a list of statutory citations, and if the right citation is not written next to the asset, the asset is not exempt. Not exempt by intention, not exempt by fairness. There is a short objection deadline running from the 341 meeting, and if nobody catches the omission in that window, the trustee proceeds.
Assets that were never disclosed
Almost never fraud in the way people imagine. It is a car titled in your name for your son. A pending wage claim you did not think counted. A bank account with $40 in it that you forgot. Each of those is fine if disclosed and dangerous if not, and the consequence for a nondisclosure the trustee finds on his own ranges from an amended schedule to a denial of discharge under section 727.
What a denied discharge means
It means you went through the entire case, your assets were administered and sold, and at the end the debts remain. All of them. Section 727 denials also bar you from discharging those same debts in a later case. It is the worst outcome in consumer bankruptcy and it is rare, which is why nobody plans for it.
Chapter 13 plans that were never going to work
A plan has to be feasible, meaning the payment has to be one you can actually make for three to five years while also paying rent and buying food. A plan built on optimistic income numbers gets confirmed and then fails in month fourteen. The case is dismissed, the mortgage arrears are back, the foreclosure resumes, and the two years of payments went to the trustee's percentage and priority claims rather than to fixing your life.
Reaffirmations that should never have been signed
A reaffirmation agreement voluntarily puts a discharged debt back on your shoulders permanently. Sign one on a car you owe $24,000 on that is worth $12,000, total it eight months later, and you owe the deficiency with no bankruptcy protection left. There are cases where reaffirming makes sense. There are more cases where a lender's paperwork gets signed because it arrived and looked official.
“The consultation I hate most is the one where someone shows me a discharged case and asks if it can be reopened to fix an exemption. Sometimes it can. Often the answer is no, and I have to explain that the $11,000 is gone and there is nothing left to argue about. It is a short meeting and it ruins my afternoon.”
Naomi Reyes-AshfordWhat to ask before hiring anyone
- Is the person I will actually speak with an attorney licensed in California, and will that attorney attend my 341 meeting?
- Which exemption system will I be using, and why that one?
- What specific events would trigger an additional fee, listed in writing?
- How many consumer bankruptcy cases has this office filed, and in which divisions of this district?
Questions we get asked
Are petition preparers a scam?
No. They are legal, regulated and fee capped, and for a filer with no assets, no house, no car worth anything and only credit card debt, one can be a reasonable choice. The mismatch happens when someone with assets uses one because it is cheap.
Can a bad filing be fixed?
Sometimes. Schedules can be amended, cases can be reopened, exemptions can occasionally be added late. Whether it works depends on how far the trustee has gotten and whether the omission looks innocent. It always costs more than doing it right.
What does a cheap filing cost in the end?
In the cases I clean up, usually the amount saved on fees plus whatever asset was lost plus the cost of the second lawyer. The fee difference between a $799 filing and a $1,850 filing is about a thousand dollars, which is less than most single mistakes.
How do I know if my current case has a problem?
Read your Schedule C and see whether every asset you care about has a statute cited next to it. If your car, your bank account and your tax refund are not on that page, ask your preparer why. Today, not after the 341 meeting.
If you have a case already filed and something feels wrong, send me your petition and Schedule C and I will read them. There is a deadline running from your 341 meeting, and it is much shorter than most people realize.