The risks of filing your own bankruptcy case

Filing a bankruptcy on your own could bring a host of problems

When you file for bankruptcy protection, there are a number of technical requirements you must fulfill. After the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act in 2005, also known as the BAPCPA, filers were required to complete a credit counseling program. This credit counseling is supposed to provide them with information on how to maintain a budget within their income and expenses and screen them for a recommendation for a voluntary debt repayment program.

This was done for the ostensible purpose of assisting debtors with their understanding of the process and to provide them with alternatives for dealing with their debts other than filing bankruptcy.

In reality, the BAPCPA was the result of a decade of intense lobbying by the banking and credit industry and this credit counseling requirement, as well as the debtor education and the means test for Chapter 7, were all designed, along with other aspects of the BAPCPA, to create as many hurdles as possible to prevent people from filing bankruptcies.

While seemingly designed to "help" debtors, many are there to create "technical" requirements that are intended to discourage some people from filing for bankruptcy protection or if missed, require the dismissal of a case or the case to be closed without granting a discharge.

If you make an error, do you understand how to fix it?

If you attempt to file on your own, to save money, you may be lucky and have your case completed without violating any of the technicalities. But you have to remember that almost everyone else involved in the process has bankruptcy attorneys working on their side.

The bankruptcy trustee is likely a practicing bankruptcy attorney who has other attorneys working in their office to review and administer your case against you. The trustee is not your friend, the trustee represents the Court and your creditors against you.

Your creditors will all have attorneys reviewing your case to see if you violated any requirement of the Bankruptcy Code, obtained or used credit fraudulently, whether you are entitled to a discharge, preparing a motion for relief from the automatic stay and any other document that the creditor needs in your case to fight you or make your case more difficult.

Of course, the judge in your case is well versed in bankruptcy law and procedure. Should you need to appear at a hearing before the judge during your case, you may be the only one in the courtroom who may be less than comfortable with the process.

And mistakes can be problematic and very difficult to undo. Mistakes may result in the dismissal of your case, which terminates the automatic stay. The termination of the automatic stay protection means any creditor can proceed with collection activity, including harassing phone calls and lawsuits. A secured creditor, such as an auto lender, where you are behind in your payments, may repossess the auto. And if you filed a Chapter 13 to stop a foreclosure proceeding on your real estate, the termination of the automatic stay would permit the mortgage lender to move forward with that case.

With a dismissal, you will have to refile and you will be assessed the full court filing fee by the Clerk of the Bankruptcy Court, as you receive no credit for the fees paid on the dismissed filing.

BAPCPA also imposed limitations on the automatic stay for repeat filers. If you have one case dismissed within one year of the refiled case, the automatic stay terminates in 30 days after the filing of the later case unless the Court, on a motion, determines that the refiled case is in good faith.

If you have two prior cases dismissed within one year of the refiled case, there is no automatic stay. To obtain a stay, within 30 days after the filing of the latest case you would need to obtain an order from the Court, on a motion, that determines that the refiled case is in good faith overcoming a presumption that the case is not filed in good faith.

Could you represent yourself in an adversary proceeding?

The Bankruptcy Code provides your creditors, the trustee and the Office of The United States Trustee with rights to fight your discharge or the discharge of the creditor's debt.

Frequently, they will start this process by issuing a Subpoena under Bankruptcy Rule 2004 that will require the production of substantial financial records and appearance at a lengthy examination. Failing to fully comply with this Subpoena can have extremely negative results. It may provide another ground to contest discharge that did not previously exist.

Failing to answer a Summons and Complaint in an adversary proceeding could result in the entry of a default judgment in the Bankruptcy Court that denies you a discharge or determines that a debt is non-dischargeable. If you file your Answer, you still have to comply with the Bankruptcy Court Rules for litigating these cases, including pretrial motions, pretrial discovery and possibly a trial on the issues raised.

Errors in your financial schedules and statement of financial affairs could cause the Office of the United States Trustee to file a motion to dismiss your case under Chapter 7 or seek the conversion of the case to a case under Chapter 13.

In a Chapter 13, you need to properly create a debt repayment plan and it needs to comply with the Bankruptcy Code requirements as well as be accurate and feasible. If these documents are not properly prepared, they could cause the case to be dismissed or require a higher repayment amount to creditors. Generally, a Chapter 13 case last from 3 to 5 years-consider what an overpayment of $100 per month would cost you.

For non-attorneys, court proceedings and procedure can be confusing and disorienting. Working with an experienced bankruptcy attorney can help prevent these types of mistakes from causing additional anxiety, the risk of the case having unnecessary problems and expense during your bankruptcy proceeding.