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A Pro Se Bankruptcy Horror Story

The term ‘pro se’ means that you represent yourself in court. In this Southern California bankruptcy case, it refers to a debtor who filed bankruptcy with the help of a petition preparer, or paralegal-tyist. You might see petition preparers advertise in the PennySaver, or you may find them on the Internet.

A legal petition preparer will type up your pages for you. And require that you file your case with the bankruptcy court on your own. The petition preparer industry is not regulated, and there is no attorney overseeing your case.

The $99 Bankruptcy Petition

In this true story, a debtor had an internet petition preparer ‘prepare’ her bankruptcy papers for $99.00. I, a bankruptcy attorney, was sitting in court waiting for my client’s case to be called. We were listening to the bankruptcy trustee ask the debtor, who we’ll call Sharon, questions about who had prepared her petition.

Sharon proudly responded that she had completed the forms over the Internet. She had paid $99.00 to download the forms and filled them out. She also had been given a phone number that she used to speak with a paralegal. That ‘guided’ her through the process. She stated she had not received any legal advice. She also testified to the trustee that she had been told, she was to advise she had not received any legal advice, if she was asked this question in court.

My client leaned over to me and whispered “I’ll bet you hope no one else finds out about that site. People will be filing for just $99.00 and you will be out of business!”. As I looked at my client sideways for a moment, I replied “Hold on, we’re not done yet. Listen to the trustee’s questions.”

Prepared Bankruptcy Petition Unfolds

Sharon had listed three parcels of real estate as assets. She testified to the bankruptcy trustee that she lived on one parcel. It had equity of $60,000. Another parcel was her investment for retirement. The other was an investment property that was rented. But, the renters had gone bankrupt. And everyone knows you can’t collect money from a bankrupt person. Therefore, the property was non income producing and exempt. Sharon had no idea what she was telling the bankruptcy trustee. She appeared to be very proud of her prudent investment decisions, as well as for her forward retirement planning.

Before the meeting’s conclusion, Sharon lost all three parcels of real estate and her retirement investment had evaporated. The trustee was going to be able to collect all the back rent from the renters at the investment property. As well as sell Sharon’s own residence. The house where she was living, all for the benefit of creditors.

Outcome of a Prepared Bankruptcy Petition

Sharon walked away from the meeting completely stunned. She had tried to make an argument that she would dismiss the bankruptcy. However the trustee appropriately reminded her that she could not dismiss the case. That her assets would be seized. Sharon nearly stumbled and fell as she attempted to leave the room. She was utterly humiliated. The world as she new it had just been turned upside down. Had Sharon planned her exemptions better, and known what the California bankruptcy laws allowed. She would not have lost her rental income property or retirement investment nor her home residence.

As I explained to my own bankruptcy client what had just taken place, they went pale. The realization that they too had been trying to save a few dollars by going to a paralegal petition preparer, before they retained the Doan Law Firm to represent them. Our client was aghast, knowing that Sharon had saved a few hundred dollars. But had lost hundreds of thousands, all in the blink of an eye. Our clients were suddenly much more thankful for the expense they had paid for up front. As the trustee entered his report of no distribution and had no questions for them at their hearing.

As I pointed out to my clients after the hearing – you get what you pay for.

Remember, you have the right to represent yourself, and you may be searching for the cheapest way out of the financial dilemma that you are in now, but don’t make the same mistake Sharon did. It is well worth your time and effort to find someone who can answer the questions and represent your interests in Bankruptcy Court. A person who represents themselves has a fool for a client.

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