Filing Your Own Bankruptcy: What Can Go Wrong

I can’t afford a bankruptcy lawyer, can I file my own bankruptcy petition?

For those long-time readers, you have caught me. I have talked about this topic before. However, I recently received several phone calls inquiring about the cost of attorneys fees associated with filing for bankruptcy. A common response? Oh, that is way too expensive, I cannot afford that.

I am here to sympathize. I realize hiring an attorney can be expensive. Unfortunately, so is law school – I will be paying student loans for the next 25 years. There are reasons that attorneys are expensive, and it (usually) has nothing to do with large homes or fancy cars.

As a Phoenix bankruptcy lawyer, I have seen the outcome of countless bankruptcy petitions. I speak from experience when I say you really can’t afford to represent yourself. I would guess that, in 99.9% of the cases I handle, my clients gain more financially through my services than I charge in legal fees. It is a win-win scenario in you ask me.

The funny thing about filing for bankruptcy protection is that you really have to get it right the first time – there are no do-overs. Assets and debts, exemptions and non exempt property, are all determined at a snapshot in time when you file. If you make a mistake at the time of filing, you are putting yourself at significant financial risk.

What can go wrong when an inexperienced individual (i.e. pro se debtors OR a general attorney) files a bankruptcy petition? The list seems endless. However, below you can find a few of the most common:

• Exemptions are not selected or applied to preserve assets. This means that assets which could have been protected are not; and they are taken by your bankruptcy trustee.
• Property is omitted from the schedules. Debtors forget to schedule intangibles like stock options, partnership interests;  interest in pending probate estates;  trust funds; lawsuits, filed or potential;  tax refunds; or retirement funds.
• Creditors are omitted, either because debtors think that only a certain kind of creditor can be discharged, or omit a creditor because they want to repay the debt.
• Debtors get “cute” about transferring assets to others before filing or deliberately not disclosing assets, on the grounds “no one will know”  
• Schedules underestimate living expenses suggesting that the debtors have ample money to fund a Chapter 13 plan, which results in denial of chapter 7 discharge.

If you haven’t caught on yet, there are problems associated with each of the above examples. I wont go into the details, but if you mistakenly (or “mistakenly”) do any of the above you are risking your assets, your non-exempt property and your ability to successfully receive a discharge of debt under the bankruptcy code.