The law, bankruptcy or otherwise, is a complex web of rules, statutes, deadlines, forms and judicial decisions. Lawyers have difficulty navigating these straits so it is that much more difficult for the layperson.
I have previously written about how risky it is to file bankruptcy without a lawyer.
Last week, while attending bankruptcy hearings at court with my clients, I realized these risks first hand.
A Case Study
At bankruptcy court, there will always be one or two debtors representing themselves. These hearings usually end with an adjournment as the debtor did not provide the required documents or comply with certain rules. I rarely get to see these pro se cases play out.
This is why I was quite surprised when a particular woman, representing herself, got the call and seemed to have everything in order. The trustee did not start the hearing with an adjournment, began his questioning and everything seemed fine.
Unfortunately, it was not.
First, this particular pro se debtor had (supposedly) saved money by hiring a bankruptcy petition preparer. Bankruptcy petition preparers are not permitted to give legal advice and can do data entry only.
I truly believe there are unforeseen costs to using petition preparers and I saw it play out in this case.
As the trustee progressed through his questioning, it was discovered that the debtor’s name was on the deed to her Mother’s house along with her Mother and her Brother. This particular house, according to the debtor, was worth approximately $400,000 and there was no mortgage on the property.
The debtor, thinking she was entitled to it, took the homestead exemption on her portion of the equity in the property. She did not realize that you are only entitled to use this exemption on the home you live in. This woman was living in a rented house with her family.
As a result, there is approximately $133,000 of non-exempt equity in this property.
What Happens Next?
There was no resolution at the hearing as the trustee had to follow up and verify all of the stated testimony.
Unfortunately, I can envision a scenario where the trustee sells this property to recover money for the creditors. Alternatively, the debtor may be forced to come up with a boat load of cash to settle with the trustee in order to avoid a sale.
While I have no idea how this will turn out, I do know that “Mom’s house” is at risk, there is no turning back and it all could have been avoided.
A bankruptcy lawyer would have spotted this issue a mile away and discussed the risks of filing chapter 7 and the alternatives.
This woman may have saved some money by hiring a petition preparer and not an attorney. On the flip side, her and her family may be facing a much larger loss at the hands of the bankruptcy trustee.
The risks associated with filing bankruptcy without a lawyer are simply not worth the meaningless monetary reward.
Image courtesy of epSos.de (Flickr).